The White House has announced steep increases in tariffs on multiple goods imported from China, to take effect between 2024 and 2026.

Products affected include electric vehicles (from their current level of 25% to 100%), lithium-ion EV batteries (from 7.5% to 25%), lithium-ion non-EV batteries (from 7.5% to 25%), battery parts (from 7.5% to 25%), steel and aluminum products (from 7.5% to 25%), solar cells (from 25% to 50%), and semiconductors (from 25% to 50%). In addition, the White House imposed a 25% duty on Chinese port cranes. 

China is likely to respond to President Biden’s tariffs on Chinese EVs — even those produced in Mexico — in several ways. Following are some potential actions.

China may impose retaliatory tariffs on U.S. goods, targeting sectors that are strategically important to the U.S. This approach would mirror the U.S. tariffs on Chinese EVs and other products. 

China may put in place non-tariff measures to hinder U.S. companies operating in China. For example, it could increase regulatory requirements; scrutinize companies’ imports, exports and other operations; delay approvals, or create administrative obstacles for American businesses.

China may set up production facilities in Mexico to avoid direct U.S. tariffs, if they meet local production requirements. Despite U.S. pressure on Mexico not to offer any incentives to China for building EVs in that country, China's BYD Company Ltd. has launched a hybrid pickup in Mexico.  Stella Li, BYD’s chief executive officer in the Americas, has said those trucks will be built for the Mexican market, and that the company has no plans to go to sell them in the U.S. 

China may exert diplomatic pressure on the U.S. government, urging it to reconsider the tariffs. This could involve high-level discussions or negotiations between the two countries.

As a last resort, China may request that its consumers boycott U.S.-made goods, including but not limited to EVs produced in the U.S.

The impact of the Biden tariffs isn’t limited to large corporations.  The increase on EVs will also affect small businesses and entrepreneurs, both negatively and positively.

On the negative side, inflation is front and center. Consumers will face higher prices, which could prevent them from purchasing EVs.

In addition, small businesses and entrepreneurs that rely on lower-cost Chinese parts, and who may lack the deep pockets of large corporations to withstand cost increases, will be at a disadvantage. And continuing supply chain disruptions could make it impossible them to match the pricing of Chinese manufacturers and sellers.

When it comes to potentially positive effects of the tariffs, small domestic businesses and entrepreneurs could benefit in the form of acquiring greater market share. And that could lead to an increase in employment for producers, distributors and sellers of domestically manufactured EVs and parts.

The increase in tariffs may also increase the stock value of clean-energy startups.  Due to the decrease in Chinese competition and rise in domestic demand (assuming current consumers’ behavior changes), clean-energy ventures will be better positioned to innovate.  This will lead to new patents and additional product launches to the market, which, in turn, will lead to an increase in investors’ confidence. 

This situation is complex.  China’s response will depend on various factors, including political considerations, economic interests and the U.S.-China relationship at large. Diplomatic channels and negotiations will likely play a crucial role in determining the ultimate outcome.

Omar Kazzaz is chief executive officer of Kazzaz Advisory Group.