Washington: The Biden administration announced plans to slap new tariffs on Chinese electric vehicles, advanced batteries, solar cells, steel, aluminum and medical equipment — an election year move that’s likely to increase friction between the world’s two largest economies.
The tariffs come in the middle of a heated campaign between President Joe Biden and his Republican predecessor, Donald Trump, in which both candidates are vying to show who’s tougher on China.
The tariffs are unlikely to have much of an inflationary impact because of how they’re structured. Administration officials said they think the tariffs won’t escalate tensions with China, yet they expect China will explore ways to respond to the new taxes on its products. It’s uncertain what the long-term impact on prices could be if the tariffs contribute to a wider trade dispute.
The tariffs are to be phased in over the next three years, with those that take effect in 2024 covering EVs, solar cells, syringes, needles, steel and aluminum and more. There are currently very few EVs from China in the US, but officials worry low-priced models made possible by Chinese government subsidies could soon start flooding the U.S. market.
Chinese firms can sell EVs for as little as USD 12,000. Their solar cell plants and steel and aluminum mills have enough capacity to meet much of the world’s demand, with Chinese officials arguing their production keeps prices low and would aid a transition to the green economy.
Lael Brainard, director of the White House National Economic Council, said the tariffs will raise the cost of select Chinese goods and help thwart Beijing’s efforts to dominate the market for emerging technologies in ways that pose risks to US national security and economic stability.
“China is simply too big to play by its own rules,” Brainard told reporters on a Monday call previewing the announcement.
Administration officials have stressed the decision on tariffs was made independently of November’s presidential election. But Brainard noted in her remarks the tariffs would help workers in Pennsylvania and Michigan, two of the battleground states that will decide who wins the election.
Under the findings of a four-year review on trade with China, the tax rate on imported Chinese EVs will rise to 102.5 per cent this year, up from total levels of 27.5 per cent. The review was undertaken under Section 301 of the Trade Act of 1974, which allows the government to retaliate against trade practices deemed unfair or in violation of global standards.
Under the 301 guidelines, the tariff rate is to double to 50 per cent on solar cell imports this year. Tariffs on certain Chinese steel and aluminum products will climb to 25 per cent this year. Computer chip tariffs will double to 50 per cent by 2025.
For lithium-ion EV batteries, tariffs will rise from 7.5 per cent to 25 per cent this year. But for non-EV batteries of the same type, the tariff increase will be implemented in 2026. There are also higher tariffs on ship-to-shore cranes, critical minerals and medical products.
The new tariffs, at least initially, are largely symbolic since they will apply to only about USD 18 billion in imports. A new analysis by Oxford Economics estimates the tariffs will have a barely noticeable impact on inflation by pushing up inflation by just 0.01 per cent.
The Chinese foreign ministry lashed out over the US move. A ministry spokesperson, Wang Wenbin, said the US is, under the banner of overcapacity, suppressing the advanced industries of other countries, carrying out protectionism with the excuse of free competition, and trampling on the principles of a market economy and international economic and trade rules.
“It’s a naked act of bullying,” Wang said.
He said China’s rapid growth in new-energy areas such as EVs, lithium batteries and photovoltaics is based on technological innovation, complete supply chain, sufficient market competition, and not so-called “subsidies.”
The Chinese economy has been slowed by the collapse of the country’s real estate market and past coronavirus pandemic lockdowns, prompting Chinese President Xi Jinping to try to jumpstart growth by ramping up production of EVs and other products, making more than the Chinese market can absorb.
This strategy further exacerbates tensions with a US government that claims it’s determined to strengthen its own manufacturing to compete with China, yet avoid a larger conflict.
“China’s factory-led recovery and weak consumption growth, which are translating into excess capacity and an aggressive search for foreign markets, in tandem with the looming US election season add up to a perfect recipe for escalating US trade fractions with China,’ said Eswar Prasad, professor of trade policy at Cornell University.
The Europeans are worried, too. The EU launched an investigation last fall into Chinese subsidies and could impose an import tax on Chinese EVs.
After Xi’s visit to France last week, European Commission President Ursula von der Leyen warned that government-subsidized Chinese EVs and steel “are flooding the European market” and said, “The world cannot absorb China’s surplus production.’
Biden’s Democratic administration views China with subsidies of its own manufacturing as trying to globally control the EV and clean-energy sectors, whereas it says its own industrial support is geared toward ensuring domestic supplies to help meet US demand.
“We do not seek to have global domination of manufacturing in these sectors, but we believe because these are strategic industries and for the sake of resilience of our supply chains, that we want to make sure that we have healthy and active firms,” Treasury Secretary Janet Yellen said.
The tensions go far beyond a trade dispute to deeper questions about who leads the world economy as a seemingly indispensable nation. China’s policies could make the world more dependent on its factories, possibly giving it greater leverage in geopolitics. At the same time, the United States says it’s seeking for countries to operate by the same standards so competition can be fair.
China maintains the tariffs are in violation of the global trade rules the United States originally helped establish through the World Trade Organization. It accuses the US of continuing to politicize trade issues and Friday said the new tariffs compound the problems caused by tariffs the Trump administration previously put on Chinese goods, which Biden has kept.
Those issues are at the heart of November’s presidential election, with a bitterly divided electorate seemingly united by the idea of getting tough with China. Biden and Trump have overlapping but different strategies.
Biden sees targeted tariffs as needed to defend key industries and workers, while Trump has threatened broad 10 per cent tariffs against all imports from rivals and allies alike.
Biden has staked his presidential legacy on the US pulling ahead of China with its own government investments in factories to make EVs, computer chips and other advanced technologies.
“We’ve created USD 866 billion in private-sector investment nationwide — almost a trillion dollars — historic amounts in such a short time,” Biden said last week in Wisconsin. “And that’s literally creating hundreds of thousands of jobs.”
Trump tells his supporters America is falling further behind China by not betting on oil to keep powering the economy, despite its climate change risks. The ex-president may believe tariffs can change Chinese behaviour, but he believes the US will be reliant on China for EV components and solar cells.
“Joe Biden’s economic plan is to make China rich and America poor,” he said at a rally this month in Wisconsin.
PTI