The newly imposed tariffs by the United States (“U.S.”) in September of 2024 on electric vehicles (EVs) and EV batteries pose a potential opportunity for Western domestic industries to transition away from internationally dominant suppliers. However, tariffs also bring a concern of economic harm in the face of an already limited supply chain. Europe, Canada, and the United States all hope to protect their domestic industries from the dumping of international excess productivity in order to protect their domestic economies as well, but they must also consider available alternatives for their industries.[1] The agreement to further phase out fossil-fuel powered vehicles as part of the Paris Agreement[2] and COP28 further complicates the need for EVs while managing domestic economies.[3] In the context of the United Nations’ push to phase out fossil-fuel powered vehicles, a balance needs to be struck between protecting against dumping of excess productivity and protecting affordable supply chains. Implementing these tariffs may be a good opportunity to find this balance by means of alternative sources, however the limited availability of EV sources poses a considerable issue, as well as the unavoidable consequence of more cost to the consumer.[4]
When a foreign producer sells their product abroad at a price that is lower than what it would be in the producer’s home market, or at a price lower than that of production, they are “dumping” their products.[5] China is the main dumping contributor in multiple industries, including the steel and solar panel industries.[6] When China became a member of the World Trade Organization (“WTO”) in 2001[7], China’s exports totaled $359 billion and its main destination of exports was the United States at a total of $178.9 billion.[8] In 2022, that total had increased to $3.73 trillion and the US remaining as the main destination with a total of $551 billion in exports.[9] Currently, China is producing more than it can use, in major industries such as electric vehicles, solar panels, and steel.[10] The Chinese steel industry produces “as much steel as the rest of the world combined,”[11] causing China’s steelmakers to dump their excess products abroad at lower prices and forcing countries like the United States to maintain strict tariffs on steel imports in an attempt to safeguard their domestic industries who cannot compete with the prices of the dumped products.[12] It is important to note that as members of the World Trade Organization, safeguard measures exist allowing a country to take action, such as imposing tariffs, to protect against threats to industries and domestic economies.[13] In the instance of EVs, Chinese produced EVs and EV batteries are being sold at such an artificially low price abroad that they pose a significant dumping issue in which these safeguard measures are encouraged to act against.[14]
Considering that China already poses a dumping issue in major industries, it’s no surprise that its dumping extends to the production of EVs.[15] According to the United States International Trade Commission, Chinese exports of EVs are increasing at a rapid rate, having jumped 1,016 percent from 2018 to 2023 to about 1.6 million EVs exported.[16] Since 2018, the U.S. tariffs on imported Chinese EV have been 27.5 percent (with the Section 301 tariffs), but despite these tariffs, the U.S. continues to import EVs from China.[17] The Section 301 tariffs recently had their statutory four-year review, through economic analyses, and the tariffs were found to have contributed to U.S. finding alternative sources for imported EVs.[18] However, it seems difficult for the United States to find an alternative source for EVs. Specifically, the production of EVs relies on cobalt, a mineral that while vital to EV batteries, is only readily found in abundancy in few places.[19] There often tends to be governmental and labor issues in the major supplier of the Democratic Republic of the Congo as well, such as child labor, lack of proper tools, and lack of labor safety enforcement, that make the purchasing of where the cobalt was sourced cheaper to buyers at the price of unethical labor.[20] Combine with the artificially low dumping prices of EVs, it’s difficult to combat the cheaper pricing while protecting domestic industries. The limitations of cobalt, and thus, the limitations of EVs generally, is a concern when considering that the United States, Canada, and the European Union (“EU”) have agreed to prioritize working towards not just more green energy sources, but more affordable green energy sources coming from ethically sourced materials.[21]
In the EU, there are concerns that further limiting EV sources by increasing costs and tariffs will make the goal of moving towards green energy sources more difficult to attain.[22] Especially considering the EU’s goal, (as part of the Paris Agreement), of being carbon-neutral by 2050, increased EV costs brought by tariffs of up to 37.6 percent could hinder this goal by driving EV prices up.[23] While this increase in costs may push the Western domestic industries into looking for other sourcing alternatives, the issue of cobalt remains. While “global cobalt production is expected to grow 585 percent by 2050”[24] because sustainable energy industries are growing, places where it can be sourced are not growing with the demand. The Democratic Republic of the Congo (“DRC”) remains to be the world’s main supplier of cobalt, and yet China is its largest trade partner and controls most of the mines in the DRC from which U.S. companies purchase cobalt.[25] According to the Observatory of Economic Complexity, between 2021-2022, China was the DRC’s main destination of cobalt, at about $1.34 billion, whereas the U.S., Canada, and any European country failed to make it into the top four countries of which the DRC exported cobalt too.[26] As a cheaper resource found in limited places and heavily controlled and influenced by China, it is even more difficult to break away from the EV products China dumps abroad due to the U.S., EU, and Canadian industry’s reliance on obtaining those goods.
While it may be difficult to find affordable alternatives for EVs in lieu of the Chinese market, the U.S., Canada, and the EU could begin by examining their trade relationships with the DRC and why China is able to exercise so much control over the DRC’s cobalt mines. While other countries, such as Austria, South Africa, and Germany can export cobalt ore, their exports are not comparable to the DRC.[27] Alternative abundant cobalt sources would have the potential to support variation in supply chains rather than sole dependency on a country which dumps its excess productivity into foreign economies. While it’s a tough balance between the benefits of diversifying the supply chain to further sustainable energy goals and the immediate reality of limited sources, it’s important for domestic industries, especially in the U.S., EU, and Canada, to be challenged to look for alternative sourcing locations, parts, and trade partners rather than being heavily dependent on the dumping by one nation of their excess products into the global market.
[1] David Lawder, US locks in steep China tariff hikes, some industries warn of disruptions, Reuters, (Sept. 13, 2024, 8:51 PM), https://www.reuters.com/business/us-locks-steep-china-tariff-hikes-many-start-sept-27-2024-09-13/.
[2] Paris Agreement to the United Nations Framework Convention on Climate Change, Dec. 12, 2015, T.I.A.S. No. 16-1104, (The agreement was signed by the United States on April 22, 2016, and the Treaties and Other International Acts Series issued by the U.S. Secretary of State documented it).
[3] U.N. Climate Change, COP28 Agreement Signals “Beginning of the End” of the Fossil Fuel Era (Dec. 13, 2023), https://unfccc.int/news/cop28-agreement-signals-beginning-of-the-end-of-the-fossil-fuel-era; The Paris Agreement, 2015 (CA), https://www.canada.ca/en/environment-climate-change/services/climate-change/paris-agreement.html (CA discusses their goals upon signing the Paris Agreement in 2015); U.S. Sec’y of State, The United States Officially Rejoins the Paris Agreement (2021), https://www.state.gov/the-united-states-officially-rejoins-the-paris-agreement/; Paris Agreement, 2015 (E.U.), https://www.consilium.europa.eu/en/policies/parisagreementclimate/#:~:text=limit%20global%20warming.,The%20EU%20and%20the%20Paris%20Agreement,global%20temperatures%20within%20safe%20limits, (European Council of the European Union discusses the ratification of the agreement and the goals that European Union members are now held to).
[4] Katie Lobosco, Biden Finalizes Increases to Some of Trump’s China Tariffs, CNN (Sept. 13, 2024, 12:33 PM), https://www.cnn.com/2024/09/13/politics/china-tariffs-biden-trump/index.html.
[5] U.S. Int’l Trade Admin., An Introduction to U.S. Trade Remedies, https://enforcement.trade.gov/intro/index.html.
[6] Hanna Ziady, A Glut of Cheap Chinese Goods Is Flooding the World and Stoking Trade Tensions, CNN (March 28, 2024, 7:42 AM), https://www.cnn.com/2024/03/28/business/china-goods-exports-trade/index.html.
[7] World Trade Organization, China and the WTO, https://www.wto.org/english/thewto_e/countries_e/china_e.htm.
[8] Observatory of Economic Complexity (OEC), China, https://oec.world/en/profile/country/chn?yearSelector1=2022.
[9] Id.
[10] Ziady, A Glut of Cheap Chinese Goods Is Flooding the World and Stoking Trade Tensions, CNN (March 28, 2024, 7:42 AM), https://www.cnn.com/2024/03/28/business/china-goods-exports-trade/index.html.
[11] The Economist: Business, Chinese Overcapacity is Crushing the Global Steel Industry, (Sept. 17, 2024), https://www.economist.com/business/2024/09/17/chinese-overcapacity-is-crushing-the-global-steel-industry.
[12] Ziady, A Glut of Cheap Chinese Goods Is Flooding the World and Stoking Trade Tensions, CNN (March 28, 2024, 7:42 AM), https://www.cnn.com/2024/03/28/business/china-goods-exports-trade/index.html.
[13] World Trade Organization, Safeguard Measures, https://www.wto.org/english/tratop_e/safeg_e/safeg_e.htm.
[14] Press Release, Fact Sheet: President Biden Takes Action to Protect American Workers and Business from China’s Unfair Trade Practices (May 14, 2024), https://www.whitehouse.gov/briefing-room/statements-releases/2024/05/14/fact-sheet-president-biden-takes-action-to-protect-american-workers-and-businesses-from-chinas-unfair-trade-practices/#:~:text=With%20extensive%20subsidies%20and%20non-market%20practices%20leading%20to,protect%20American%20manufacturers%20from%20China%E2%80%99s%20unfair%20trade%20practices.
[15] Id.
[16] USITC, Chinese Vehicle Exports: Electrified, (April 2024), https://www.usitc.gov/publications/332/executive_briefings/ebot_china_ev_exports.pdf.
[17] Id.
[18] Office of the United States Trade Representative, USTR Finalizes Action on China Tariffs Following Statutory Four-Year Review (Sept. 23, 2024), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/september/ustr-finalizes-action-china-tariffs-following-statutory-four-year-review#:~:text=Economic%20analyses%2C%20including%20the%20principal%20U.S.%20Government%20analysis,potentially%20supporting%20U.S.%20supply%20chain%20diversification%20and%20resilience.
[19] Roger E. Meiners & Andrew P. Morriss, Addressing Green Energy’s “Resource Curse”, 33 Duke Envtl. L. & Pol’y, (2022).
[20] U.N. Climate Change, Electric Future, (May 23, 2022), https://unfccc.int/news/electric-future.
[21] U.N. Climate Change, COP28 Agreement Signals “Beginning of the End” of the Fossil Fuel Era (Dec. 13, 2023), https://unfccc.int/news/cop28-agreement-signals-beginning-of-the-end-of-the-fossil-fuel-era; The Paris Agreement, 2015 (CA), https://www.canada.ca/en/environment-climate-change/services/climate-change/paris-agreement.html), https://www.state.gov/the-united-states-officially-rejoins-the-paris-agreement/; Paris Agreement, 2015 (E.U.), https://www.consilium.europa.eu/en/policies/parisagreementclimate/#:~:text=limit%20global%20warming.,The%20EU%20and%20the%20Paris%20Agreement,global%20temperatures%20within%20safe%20limits.
[22] Philip Blenkinsop & Charlotte Van Campenhout, China-built EVs Hit With Duties in Biggest EU Trade Case Yet, Reuters, (July 4, 2024, 9:06 AM), https://www.reuters.com/business/autos-transportation/eu-imposes-duties-china-built-evs-leaving-four-months-talks-2024-07-04/.
[23] Id.
[24] Kaitlin Schleich, Unveiling the Dark Side of Innovation: Sustainable Mining, and Modern-Day Slavery, 27 SMU Sci. & Tech. L. Rev. 135, (2024).
[25] Id.
[26] Observatory of Economic Complexity, Cobalt in Democratic Republic of the Congo, https://oec.world/en/profile/bilateral-product/cobalt/reporter/cod.
[27] Observatory of Economic Complexity, Cobalt Ore, https://oec.world/en/profile/hs/cobalt-ore.
