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Can EV Production Thrive in Spite of US "China Tariffs"?

Through Section 301, "China Tariffs," the United States Trade Representative (USTR) imposes additional ad valorem tariffs rates between 7.5% and 25% on the majority of Chinese-origin products, including lithium-ion batteries, battery cells, critical minerals, and various other inputs required for EV manufacturing.
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Section 301 "China Tariffs"

  • Pursuant to findings based on Section 301 of the Trade Act of 1974 (19 USC § 2411), USTR imposed additional duties on four tranches of products between June 20, 2018, and January 22, 2020.
  • The tranches are known as "List 1", "List 2", "List 3", "List 4A," and "List 4B" and cover approximately $550 billion worth of yearly imports from China.
    • Products on Lists 1-3 are currently subject to an additional 25% tariff, including battery cells, battery storage components, most automotive parts (e.g., electric motors, transmission, body, axle, suspension, steering assemblies, and components), critical minerals (e.g., lithium, cadmium, cobalt, lead, mercury, zirconium, magnesium), and artificial graphite and the raw materials to produce it (e.g., pitch coke).
    • Products on List 4A are currently subject to an additional 7.5% tariff, including lithium-ion batteries, certain nickel-cadmium storage batteries, and certain used batteries for the recovery of lead. Products under List 4B are not currently subject to any additional tariff.
  • When the Section 301 tariffs were implemented, the USTR established a process to exclude certain products on List 1 – List 4A from their corresponding Section 301 tariff. All product exclusions that were originally granted or extended have now expired; all products subject to the China tariffs are paying up to 25% additional tariffs.
  • Between October 12, 2021, and December 1, 2021, the USTR accepted comments to evaluate whether 549 product exclusions should be reinstated.

What to Know

  • Over 2,000 reinstatement comments were submitted to the USTR by December 1, 2021, including the following products that are currently subject to a 25% tariff: artificial graphite, machinery for manufacturing lithium hydroxide, battery balancers, electric motors, electric work trucks, electric bicycles, and various inputs impacting EV production (e.g., PCBs, brake system valves and sensors, junction boxes used for EV technologies along with other electric components, rear-view mirrors, and certain axles).
  • We expect USTR announcements on whether these 549 product exclusions will be reinstated in early 2022. If a reinstatement is approved, importers can avoid up to 25% tariffs on imports and can seek reimbursements dating back to imports from October 12, 2021.
  • Battery cells, lithium-ion batteries, critical minerals for battery production, and most automotive goods were not eligible for this first reinstatement process and remain subject to the China tariffs.  
  • For these other products that were not subject to the first reinstatement process, at least one other round of reinstatements during this coming year seems likely. Given the Administration's EV supply chain goals, exclusions for EV components may be promising.
  • The results of the Section 301 Litigation on List 3 and List 4A products, expected near the summer of 2022, may also provide relief.
  • This year, we expect CBP to decide whether to finalize its proposed rule regarding certain origin determinations for products imported from Canada or Mexico. If finalized, the origin of products produced in Canada or Mexico using Chinese components could change under tariff-based rules of origin, thereby avoiding China tariffs in some circumstances and overturn the effect of CBP's Johnson Electric ruling.

How We Can Help

From critical minerals, to component parts, to final vehicle assembly, US trade rules, such as the Section 301 China Tariffs, must be part of the calculation. Our team at Arent Fox LLP works closely with the North American automotive sector to help companies understand the rules, realize a competitive advantage, and achieve real cost savings.

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