Tariffs have become a weapon in geopolitics and, as the U.S. faces an election in November, the impact of tariffs on the electronics industry is once again top-of-mind. Chinese-made EVs are facing tariffs of 100 percent in the U.S., and growing unease about sourcing from China and affiliated countries has global enterprises reassessing their supply chains.
China’s dominance in battery manufacturing has prompted many nations to impose tariffs on batteries as well as EVs as they encourage domestic development. In May, the Biden administration announced a new 25 percent tariff on lithium-ion batteries would commence in 2026.
Alexander Battery Technologies facilities in the UK
Supply chain resilience is also a factor in this supply chain realignment. Re-, near- and friend-shoring are on the upswing. UK-based custom battery pack manufacturer Alexander Battery Technologies (ABT) has seen a marked increase in queries from U.S.-based OEMs in the past six months, according to its chief commercial officer Alex Stapleton. ABT already has U.S. customers, but the costs associated with imports from China, the possibility of higher tariffs and a commitment to sustainability have sparked new conversations, he said.
“The recent 25 percent tariff on Chinese batteries has introduced significant challenges for U.S. companies, particularly in sectors like consumer electronics and electric vehicles,” he explained. “This increase in costs has forced many OEMs to reconsider their supply chain strategies and explore alternatives to mitigate these disruptions.”
Impact of tariffs
Sourcing batteries from China would still be cost-effective for some manufacturers even with the new tariffs. “A good example of that is medical devices,” Stapleton explained. “The medical industry may spend 2-3 years designing a product. They’re also making relatively high margins. So, if they’re buying a battery pack for $100 and now it’s $125, but the end product is $5,000, it’s cheaper [to maintain status quo.]”
For other end-customers, the impact will largely depend on whether businesses can absorb these additional costs or choose to pass them on, Stapleton added. While larger OEMs may have the resources to mitigate the tariff’s effects, smaller manufacturers might face greater challenges, potentially leading to increased prices for consumers.
“I’m quite sure that there will be cases where U.S. businesses will be able and willing to absorb increased tariffs; even to the point where the commercial advantage of purchasing from China is mostly eroded or pricing reaches parity,” he said. “Companies will accept parity because the cost to change supplier, particularly for certified product, is expensive and it’s slow.”
However, in the majority of cases, a tariff increase will push the costs of most customized lithium battery products too high. “As we are seeing, I do expect more businesses to investigate relationships with battery makers in U.S.-allied countries where these tariffs can be avoided for the long-term,” Stapleton said. “Some additional manufacturing will likely come back to U.S. manufacturing as well.”
It already has, according to the Reshoring Initiative. Electric vehicle batteries were the most actively reshored/invested-in products in the U.S. in 2023. Investments in EV batteries have been booming as companies strive to secure a sufficient supply and reduce dependence on imports from Asia, particularly China, the firm reported. In 2023, 53 battery-related cases accounted for 49,000 U.S. jobs announced.
Geopolitical concerns
Geopolitical uncertainties, such as the current tensions between China and Taiwan and shifting trade policies, have had a significant impact on global supply chains. Companies operating in high-risk regions are experiencing increased costs, delays and operational unpredictability. These factors have prompted many U.S. OEMs to reconsider their reliance on particular markets, especially in critical sectors like battery manufacturing.
ABT’s Alex Stapleton
“We have been told by several of our larger customers and prospective customers that they are additionally concerned about future Covid-type events as well as geopolitical risks for regions such as Taiwan,” Stapleton said. “This is driving thinking and changes for new projects, but not for existing established supply chain.”
Many businesses are actively seeking alternatives to mitigate risks by diversifying their supply chains. Countries such as the UK and other European nations are becoming attractive alternatives for U.S. OEMs, according to Stapleton. “These regions offer high-quality battery solutions, dependable logistics and regulatory environments that align with U.S. companies’ goals around sustainability and innovation.”
Research indicates demand for battery packs will only increase. The global Li-ion battery pack market is expected to reach $120 billion by 2031, according to Transparency Research, with an estimated CAGR of 11 percent during the forecast period.
“While the U.S. may absorb some of the initial tariff impact, it is likely that many companies will seek more stable and cost-effective partnerships with battery manufacturers in allied countries,” Stapleton said. This shift is already underway, with U.S. firms showing greater interest in suppliers from regions like the UK.
Since 2022, trade data shows a noticeable increase in political proximity between trading partners, which is a sign of friend-shoring, according to business consultancy RSM. Trade with close allies like Japan, South Korea, England, and the euro area is now almost five times the trade with China.
“We see this as an opportunity for U.S. companies to reassess and strengthen their supply chains, ensuring resilience in the face of ongoing geopolitical shifts,” Stapleton concluded. “By partnering with trusted suppliers in stable regions, companies can reduce risks and maintain their competitive edge.”
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