Nation & World
EVs fight warming but are costly. So why aren’t we driving $10,000 Chinese imports?

Alvin Powell

Harvard Staff Writer

September 6, 2024 long read

Experts say tension between trade, green-tech policies hampers climate change advances; more targeted response needed

Lowering auto emissions has long been a key goal in the battle against climate change. The most recent steps taken by the Biden administration include new rules earlier this year intended to force automakers to slash carbon emissions from gasoline-powered models and ramp up sales of electric vehicles, or EVs.

But on Friday the White House also finalized a 100 percent tariff on EVs from China, which has a big supply of lower-price models that U.S. officials worry could flood the market. It is of particular concern because EVs available here tend to be pricier. So while cheaper imports could boost EV use and cut emissions, they also pose a competitive threat to U.S. automakers, one the administration describes as unfair.

The climate change battle is many-faceted. The push-pull of policy dilemmas like this one offer a lesson in how global and domestic economics and politics (particularly in an election year) further complicate the task of dealing with a warming planet, according to University experts on EVs and international trade. And there may be more targeted, effective responses than those being employed.

“There is an inherent tension between trade policy — and sometimes social policy — and the goal of accelerating the deployment of clean technology,” said Henry Lee, the Jassim M. Jaidah Family Director of Harvard Kennedy School’s Environment and Natural Resources Program. “By excluding China’s clean energy options, you are going to slow down U.S. efforts to decarbonize its economy and increase the cost. And it might be worth it, for domestic industrial policy. But every trade economist is going to tell you that this is a dumb thing to do if you care about climate.”

And puzzling to many U.S. consumers who wonder why electric vehicles in China can be bought for under $10,000 while the U.S. has only one sub-$30,000 offering, the Nissan Leaf, at about $29,000 with a range of just 149 miles, and a slew of feature-laden vehicles priced for well-off American drivers.

Electric vehicle prices in the United States versus China.

Illustration by Liz Zonarich/Harvard Staff

U.S. automakers, meanwhile, are keeping a wary eye on low-cost Chinese models like the BYD Seagull, small but well fitted out by one of China’s leading automakers. The car, which retails in China for about $11,500 and has a 250-mile range, has impressed reviewers and prompted dire warnings that U.S. automakers had better sit up and take notice before it is too late.

Raising access to inexpensive electric vehicles would appeal to less-well-off buyers and make EVs more attractive to a broad array of U.S. consumers. From a climate change standpoint, that’s important because the transportation sector is the nation’s largest single source of planet-warming greenhouse gases, accounting for about 40 percent of U.S. carbon dioxide emissions, according to a 2022 report by the Congressional Budget Office.

The Biden administration recognized the sector’s importance in addressing climate change in 2021 when it set a national goal that zero emission vehicles make up 50 percent of new vehicle sales by 2030.

Robert Lawrence, HKS’ Albert L. Williams Professor of International Trade and Investment, said the failure to adopt measures that address climate change directly, such as a national cap-and-trade scheme for carbon dioxide emissions or a national carbon tax, have forced those designing national climate policy to reach for other tools less suited to driving rapid change in the climate crisis.

Lawrence cited Jan Tinbergen, the first recipient of the Nobel Prize in economics, saying that a government with multiple policy objectives — such as quickly reducing CO2 emissions, supporting the national auto industry, and fostering the growth of a domestic green technology industry — must deploy multiple tools to achieve those goals.

“If you want to hit a bullseye, you need an arrow. And if you only have one arrow and want to hit two bullseyes, well, you’d want the targets to be aligned,” Lawrence said. “The United States — meaning the Biden administration — is seeking to achieve multiple objectives with its industrial policies, but they are inherently at tension with one another. If our priority is climate change — because it’s an ‘existential crisis’ — then we would be better off obtaining the necessary inputs, the hardware we need, in the cheapest way possible.”

U.S. political concerns are a significant complication, however. Since the Obama administration, the government hasencouraged domestic automakers to invest in EV technology and manufacturing, so there would be a political price to pay if inexpensive foreign vehicles were allowed to undercut them, Lee said.

In fact, harm to those companies and workers would have electoral repercussions severe enough that, on the nation’s deeply divided political landscape, they could tip the result toward an administration hostile to efforts to address climate change, Lee said.

In the meantime, U.S. consumers ask why foreign automakers can turn out EVs at a fraction of the price offered by U.S. sellers. A February review by Car and Driver of the 2024 U.S. electric vehicle fleet covered 57 models with one, the Leaf, under $30,000, and three more under $40,000. The list had 26 models over $70,000 and eight over $100,000.

Lee and Elaine Buckberg, senior fellow at Harvard’s Salata Institute for Climate and Sustainability and former chief economist at General Motors, said the wide disparity between U.S.- and Chinese-made EV prices is due in part to factors inherent in the two nations’ markets, like significantly lower labor costs, low Chinese real estate prices, and a reduced cost in processing raw materials due to lower environmental standards.

Chinese carmakers — many of which are partly government owned — also benefit from generous subsidies and tax breaks.

Further, Buckberg pointed out the Chinese “use case” is different. Many models sold there wouldn’t be attractive to U.S. buyers because Chinese drivers tend to take shorter trips at slower speeds than their U.S. counterparts. That means inexpensive vehicles with less power and shorter range are attractive there but might have trouble finding buyers here.

“Many models sold there wouldn’t be attractive to U.S. buyers because Chinese drivers tend to take shorter trips at slower speeds than their U.S. counterparts.”

Elaine Buckberg

There’s also the price war. While China’s national government sets policy goals to encourage the development of battery electric vehicles, execution of those goals has been left to the provinces and regional governments, many of which have a stake in their local automakers.

The result is more than 100 Chinese automakers trying to outcompete each other, creating a manufacturing glut as they try to grab market share. It also means a surplus of vehicles that can be sold internationally at a discount.

Buckberg said some models by leading Chinese manufacturers like BYD, Nio, and XPeng Motors have the potential to do well in the U.S., though they face the hurdles of not having a dealer network for sales and repairs as well as the stiff tariff.

Some of those cars, in fact, are already finding buyers in Europe, where surging imports of Chinese EVs led to a European Union investigation of unfair government subsidies and the imposition of tariffs of up to 36.3 percent on the cars.

Meanwhile, in the U.S., growth in demand for electric vehicles has cooled recently. Second-quarter sales a year ago were up 50 percent over the first quarter. This year, that figure is 11 percent. While sales growth remains positive, Lee said there are significant factors still holding back many U.S. buyers.

After price, he said, range is the major concern. Americans love vehicles with a 400- to 500-mile range, but longer range means a bigger battery, which increases cost.

That leads to another concern: the availability of charging stations, Lee said. Drivers want to be able to pile the kids in the car and make that twice-yearly visit to distant family without worrying about being stranded on the side of the road or waiting in long lines for a highway charging station.

The news is not all bad, however. Charging infrastructure continues to be built and, though sales have cooled, many more models have hit the U.S. market, diversifying offerings to consumers, according to Buckberg, who leads a Harvard-MIT collaboration on EV-charging infrastructure based at the Salata Institute. Just a few years ago, Tesla held more than 80 percent of the U.S. market for electric vehicle sales; now that is around 50 percent, she said, a sign of the market maturing.

“Now you’re having a lot more mainstream offerings. You’re having Fords and Chevys and Kias and more EV entries that are in different shapes and sizes to meet consumers where they are in the market,” Buckberg said. “If they want a truck, they still want a truck. If they want an SUV with five seats, they still want an SUV with five seats, even if they’re open to it being an EV.”

The theory behind protective tariffs and subsidies — tax credits of up to $7,500 are available for EV purchases — is to allow the domestic industry time to develop so it can better compete. But Lawrence said he’d rather see government support go to research and development so that U.S. companies are behind the next great idea and don’t need government support to compete.

And if tariffs are deemed necessary, Lawrence said they should be tailored to their goals — encouraging the transition to a green economy while protecting critical industry. From a climate-change standpoint, the existing tariffs — 100 percent on EVs, 50 percent on solar panels, and 25 percent on steel — are too blunt as tools.

“We’re only going to really fight climate change effectively when it’s cheaper to use renewable technologies than it is to use fossil fuel-based technologies.”

Robert Lawrence

Instead, he said, you might design tariffs to keep out Chinese EVs to protect the U.S. auto industry, retain the steel tariff but exempt steel that is used to build windmills, lowering the cost of wind power, and let in inexpensive solar panels — $15 each compared with $35 to $40 from U.S. manufacturers — to drive solar energy growth across the U.S. That would be at minimal risk to the economy because of the small size of the U.S. solar industry and the availability of alternate fuels for electricity production if China suddenly stops selling.

“We’re doing none of that right. We’re instead adopting a highly protectionist stance that’s all intertwined with this idea that we need to have a manufacturing renaissance,” Lawrence said. “We’re only going to really fight climate change effectively when it’s cheaper to use renewable technologies than it is to use fossil fuel-based technologies. That’s really the only viable answer. You may believe in climate change, you may not. But if I can show you that you’ll save money by putting solar panels on your roof, you’ll do it.”