The impact of Changes in Trade Policies on the Electric Vehicle (EV) Sector – a CGE Analysis

In this paper, we develop a CGE model which considers both the upstream and downstream of an EV supply chain, analyzing the impact of global tariffs on Chinese exports of EVs and hybrids and EV parts on trade, output, and the overall economy. Simulation results indicate significant differences in the effects of tariffs on upstream EV parts compared to downstream EVs and hybrids. A global tariff increase on Chinese EVs and hybrids leads to a decline in China’s exports of such products, while major EV producers increase their exports of EVs and hybrids. The magnitude of the trade diversion effect varies and depends, in part, on Chinese EV exports’ share of domestic EV consumption in each region. Moreover, global tariffs on downstream EVs and hybrids affect upstream production and trade: major EV producers expand their EV and hybrid production, subsequently increasing their demand for EV parts and ICE parts from China. This leads to a rise in Chinese exports of EV parts and ICE parts to these regions. By contrast, global tariffs on Chinese exports of EV parts depict a different picture: global tariffs against Chinese exports of EV parts cause a significant decline in Chinese exports of EV parts to other regions, while other regions increase their exports of EV parts. This, in turn, affects downstream EV prices, leading to a change in global trade and production paterns of EVs. Certain major EV producers in the industry increase their production and exports of EVs and hybrids, while others experience a decline. The macroeconomic consequences are also different in the two scenarios: Notably, China experiences a greater decline in welfare when global tariffs increase against Chinese exports of EV parts compared to EVs and hybrids.