How will Biden’s China EV tariff decision affect battery materials?

President Biden is expected to announce new tariffs on some Chinese imports including electric vehicles and battery metals as soon as Tuesday, a decision that will be felt across the EV supply chain.

The decision is not new; it has been percolating for around two years, and has been helped to the top of the agenda by Donald Trump recently promising that if he were to become the next US president he would hike tariffs on all Chinese imports by 60%.

Certain US industries like steel and car makers have long been lobbying for more stringent tariffs on imports from China, worried that the US market would end up flooded by cheaper Chinese versions of the product. While both Democrats and Republicans want to see some form of tariffs imposed on Chinese imports, a blanket 60% move could harm US consumers given that China is the country’s third-largest trading partner.

Biden’s version is for mitigating the potential negative impact by targeting a much narrower set of materials and products, including EVs, semiconductors, and solar equipment.

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Why tax Chinese EVs and materials?

In the space of a short few years, China has managed to exponentially increase its EV exports, from 1 million in 2020 to 5 million in 2023, making US car makers worried that cheaper Chinese EVs will flood the market. The reality is that China poses less of a threat to the US in terms of domestic sales. However, it is a very serious competitor abroad. Courtesy of international sanctions the most numerous electric cars driven in Russia are no longer Teslas but Chinese brands.

China’s likely response

China has never been one to take such tariff decisions lying down and is very likely to respond in kind. As part of this long-simmering dispute, in December the country brought in export controls on spherical graphite, a precursor for EV battery anodes, a move that has already left Swedish battery makers unable to source the material. As the EV and EV battery supply chains are globally interwoven is it difficult to say where the fallout of the tariffs will end.

Investment idea

Battery metals and materials such as nickel, cobalt, manganese and aluminium will be supported by the trade frictions but the price rally could be dampened by an oversupply situation in the broader market, as in the case of nickel.

It is harder to predict the fallout on companies that are part of the battery materials supply chain because it will depend on how well they can insulate themselves from Chinese imports or can innovate their production processes.

A good example is Sweden’s Northvolt, the largest European home-grown battery maker. Initially shocked by China’s decision to limit metal exports to the country, Northvolt eventually developed a new sodium-ion battery that does not use cobalt, nickel, or lithium. The company is not yet publically traded but plans to list in one of the potentially largest European IPOs this year.

The same is the case for Chinese companies. They have had to rethink their trade and export strategies since Trump’s last presidency and the current boom in their exports to Russia and Asia is partially the result of restrictions imposed by the US and Europe five years ago.

From an investment point of view, this is a theme that will not go away, irrespective of who wins the US election this winter. There is broad partisan support for tariffs on China; the difference in opinions is by how much, and not if. Europe is following suit with its own set of decisions, and China will eventually also react.

In this world of energy transition, the demand for EVs, batteries and chips will continue to run strong and it makes sense to make it part of any investment portfolio.

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