Tai Says Additional Response Needed to Counter China's EV Industry, Including in Mexico

U.S. Trade Representative Katherine Tai says that her agency and Congress "will need to work closely together" to address the fact that "existing rules of origin have left openings" for Chinese firms with operations outside China to avoid Section 301 tariffs and, depending where the operations occur, benefit from free trade agreements.

Tai suggested a change in customs law might be needed, in a letter earlier this month to the leaders of the House Select Committee on China, responding to their November letter, which complained that BYD, Chery and SAIC Motor Corp. have established themselves in Mexico, which could give them a way into the U.S. market without having to pay 27.5% tariffs on their cars.

That letter also asked Tai to raise tariffs on electric vehicles and EV batteries "to stem the expected surge" in Chinese imports (see 2311090053). Her response was first reported by The New York Times.

Tai told the chairman, ranking member and two Michigan representatives who co-wrote the letter that she shares "your strong concerns about China’s state-led approach to its economy and its use of unfair policies and practices in this sector." She said the administration's "response needs to work at all levels of the EV supply chain in order to defend U.S. workers and businesses, correct distortions arising from China’s non-market policies and practices, and restore fair, competitive, market-oriented economic conditions."

She said that the Inflation Reduction Act incentivizes manufacturing in these areas, as well as nudges companies to move their supply chains out of China -- an allusion to the foreign entity of concern rules for EV battery inputs and critical minerals, a limit on consumer tax credits. Those tax credits promote adoption of EVs, she noted.

But, she said, the IRA's restrictions on Chinese content aren't enough. "We need to work with U.S. companies and unions to identify and deploy additional responses to help overcome China’s state-directed industrial targeting in this sector," she wrote.

She made no commitments on whether higher Section 301 tariffs on Chinese EVs or batteries would be part of that response, but said the agency will "consider the effects of the tariffs on the U.S. economy, including consumers, and ways to make the tariffs more strategic."

She said she expects the review will "conclude in the next few months."

Reached for comment, a spokesperson for the Select Committee said it "appreciates" Tai's response, in particular her recognition "that we must account for the full EV supply chain," including Chinese dominance of critical minerals and manufacturing. She said "USTR should investigate more fully with a comprehensive [Section] 301 investigation of China’s EV industry," adding that, "as the USTR concludes its four-year-review of 301 tariffs, the Chairman urges Ambassador Tai to consider if tariffs on PRC EVs are sufficiently high to account for the significant market distortions brought about by PRC industrial policies."