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 increasing 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 Chinese government was quick to push back, issuing a statement Tuesday that the tariffs “will seriously affect the atmosphere of bilateral cooperation.” The foreign ministry used the word “bullying.”
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 U.S., but officials worry low-priced models made possible by Chinese government subsidies could soon start flooding the U.S. market.
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Chinese firms can sell EVs for as little as $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 U.S. 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.
But China's commerce ministry said in a statement that the tariffs were “typical political manipulation” as it expressed its “strong dissatisfaction” and pledged to “take resolute measures to defend its rights and interests."
Under the findings of a four-year review on trade with China, the tax rate on imported Chinese EVs will rise to 102.5% this year, up from total levels of 27.5%. 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% on solar cell imports this year. Tariffs on certain Chinese steel and aluminum products will climb to 25% this year. Computer chip tariffs will double to 50% by 2025.
For lithium-ion EV batteries, tariffs will rise from 7.5% to 25% 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.
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The new tariffs, at least initially, are largely symbolic since they will apply to only about $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%.
The auto industry is still trying to assess the impact of the tariffs. But at present, it appears they could be assessed on only two Chinese-made vehicles, the Polestar 2 luxury EV and potentially Volvo’s S90 luxury gas-electric hybrid midsize sedan.
“We’re still reviewing the tariffs to understand exactly what’s affected and how,” said Russell Datz, spokesman for Volvo, a Swedish brand now under China’s Geely group. A message was left seeking comment from Polestar, which also falls under Geely.
The Chinese foreign ministry spokesperson, Wang Wenbin, said the U.S. is trampling on the principles of a market economy and international economic and trade rules.
“It’s a naked act of bullying,” Wang said.
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 U.S. 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 U.S. election season add up to a perfect recipe for escalating U.S. 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.’’
President Biden's Democratic administration views China, with its subsidies of manufacturing, as trying to globally control the EV and clean-energy sectors, whereas the administration says its own industrial support is geared toward ensuring domestic supplies to help meet U.S. 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 U.S. of continuing to politicize trade issues and on Friday said the new tariffs compound the problems caused by tariffs the Trump administration previously put on Chinese goods, which President 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. President Biden and Trump have overlapping but different strategies.
President Biden sees targeted tariffs as needed to defend key industries and workers, while Trump has threatened broad 10% tariffs against all imports from rivals and allies alike.
President Biden has staked his presidential legacy on the U.S. pulling ahead of China with its own government investments in factories to make EVs, computer chips and other advanced technologies.
“We’ve created $866 billion in private-sector investment nationwide — almost a trillion dollars — historic amounts in such a short time,” President 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 behavior, but he believes the U.S. 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.
