How Trump's China tariffs, retaliation could put the U.S. EV supply chain in a tailspin

Yahoo

23-04-2025

Three years after the Inflation Reduction Act incentivized the auto industry to build an electric vehicle supply chain in North America, the U.S. EV market is in a jam.
President Donald Trump's tariff policy seeks to increase U.S. auto production. But it's virtually impossible to build an EV battery from start to finish in the U.S. today. China is a top supplier of many essential battery materials and almost the sole refiner of elements that go into batteries.
And the rapid implementation of the tariffs means automakers and suppliers don't have time to solidify the domestic supply chain intended to break their reliance on China.
For now, they lack both the factories and supply chain, and they face retaliatory moves by China.
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China has restricted exports of several rare-earth minerals and imposed 125 percent tariffs on U.S. goods in response to Trump's duties.
'By no means do we have the volumes domestically … to make an all-American top-to-bottom EV. We're just nowhere near that,' said Alex Kosyakov, CEO of Natrion, which makes battery separators in New York.
Thirty-seven of the 54 electric and plug-in hybrid models sold in the U.S. last year relied on suppliers outside the U.S. and Canada for more than half of their vehicles' parts, according to an analysis by IDTechEx, which combines data for the two nations. Fourteen of them used no American or Canadian parts. (Many auto parts imported from Canada will be subject to a 25 percent tariff.)
Reducing carbon emissions and creating a U.S. EV supply chain were top priorities for the previous administration, leading to President Joe Biden's 2022 Inflation Reduction Act. The act provided federal incentives to build out a North American EV supply chain and funded consumer discounts on new and used EVs.
It prompted companies to invest more than $116 billion in domestic EV manufacturing since 2022, according to Atlas Public Policy's EV Jobs Hub dashboard.
Biden also imposed a 100 percent tariff on Chinese EVs and a 25 percent duty on lithium ion batteries.
Since then, Trump has added a 25 percent tariff on all vehicle imports, 25 percent levy on steel and aluminum and a series of reciprocal tariffs, including 145 percent on China. A 25 percent tariff on a long list of automotive parts will be implemented by May 3.
Trump on April 15 signed an executive order launching an investigation into the national security risks posed by U.S. reliance on imported processed critical minerals and their derivative products.
A week later, Trump told reporters that tariffs on China 'will come down substantially.' He did not say what the new tariff rate would be but said it 'won't be zero.'
Still, the immediacy of Trump's strategy so far — and China's retaliation — could put the nascent U.S. EV supply chain in jeopardy, said Michael Dunne, CEO of Dunne Insights.
China is 'home to some crucial industrial inputs that could throw a wrench into the manufacturing backbone in the United States almost instantly,' Dunne said.
Its export restriction of rare-earth minerals and magnets that are essential for EV batteries and for electronics in gasoline-powered vehicles reminds the U.S. and the rest of the world of China's leverage.
'It's not in their interest to cut it off 100 percent,' he said. Instead, they are playing 'cat and mouse with the rest of the world, saying, 'We're in charge here, and we can release or restrict as we see fit. So you should think twice before raising tariffs.' '
Automakers likely stockpiled rare-earth minerals, but their supplies will probably run dry within the next two to three months, Dunne said.
Trump has said the tariffs will spur more U.S. manufacturing.
But creating a supply chain can take many years. Automakers and suppliers already assemble batteries near their EV production plants to comply with the Inflation Reduction Act and to avoid shipping the heavy battery cells.
Still, they are purchasing the battery cells' raw material largely outside the U.S.
'Those are the things that are going to take a lot more time to be able to bring stateside and set up a supply chain locally for,' said Carl Crittenden, a lead engineer at Munro & Associates.
If the tariffs remain, automakers and suppliers would pay more for essential battery materials, such as lithium from Australia and South America and graphite from China. Or U.S. companies could try to source materials domestically or from a country less exposed to tariffs.
The U.S. could find rare-earth materials elsewhere, but the process of identifying a mine, extracting the elements and processing them at industrial scale would likely take longer than Trump's term, said Philipp Kampshoff, global co-leader of McKinsey & Co.'s automotive and assembly practice.
That timeline could put the industry in a 'valley of tears,' he said. Automakers' and suppliers' costs will rise while sales decline.
'That's the double whammy that you will feel in the near term,' he said.
The tariffs will be 'hugely disruptive' even for companies that operate in the U.S., Natrion's Kosyakov said.
Natrion makes separators for EV batteries by LG Energy Solution and other battery manufacturers. It is one of a handful of suppliers that make separators in the U.S.
Despite its U.S. manufacturing edge, Natrion is in a bind. If orders increase substantially, the company doesn't have the capacity to fill them, Kosyakov said.
Natrion also depends on China for fundamental materials. Electrolytes in every battery cell need fluorochemicals, Kosyakov said. China is the largest fluorochemical producer. Natrion also uses graphite and lithium salts made in regions outside China, but China refines the vast majority.
China 'has cemented itself within this industry in all parts of the supply chain,' Kosyakov said.
Many small EV suppliers would go out of business if exorbitant tariffs and China's restriction of rare-earth minerals and magnets last through Trump's four-year term, Crittenden said.
The limitations of the tariffs could eventually spur innovation in more domestically abundant materials, such as sodium for sodium ion batteries, Crittenden and Kampshoff said.
For now, the tariffs and China's export restrictions point to a bleak future for EV manufacturing in the U.S.
'There is no possible outcome except for supply chain chaos, delays and higher costs,' Dunne said.
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