WASHINGTON – The Biden administration has announced plans to impose new tariffs on Chinese electric vehicles, advanced batteries, solar cells, steel, aluminum and medical equipment — an election-year move that is likely to increase friction between the world’s two largest economies.
The tariffs come amid a heated campaign between President Joe Biden and his Republican predecessor, Donald Trump, in which both candidates are competing to show who is tougher on China.
Tariffs are unlikely to have a major inflationary impact due to the way they are structured. Administration officials have said they believe the tariffs will not increase tensions with China, but they hope China will explore ways to respond to the new taxes on its products. It is not known what the long-term impact on prices could be if the tariffs contribute to a broader trade dispute.
The tariffs will be phased in over the next three years, with those taking effect in 2024 covering EVs, solar cells, syringes, needles, steel and aluminum, and more. There are currently very few electric vehicles from China in the U.S., but officials fear that low-priced models, made possible by Chinese government subsidies, could soon begin flooding the U.S. market.
Chinese companies can sell EVs for as little as $12,000. Its solar cell factories and steel and aluminum factories have enough capacity to satisfy much of the world’s demand, with Chinese authorities arguing that their production keeps prices low and would help the transition to a 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 national security and stability. US economy.
“China is simply too big to follow its own rules,” Brainard told reporters on a conference call Monday in anticipation of the announcement.
Administration officials stressed that the decision on the tariffs was made independently of the November presidential election. But Brainard noted in his remarks that the tariffs would help workers in Pennsylvania and Michigan, two of the swing states that will decide who wins the election.
According to the findings of a four-year review of trade with China, the tax rate on imported Chinese EVs is expected to rise to 102.5% this year, up from full levels of 27.5%. The review was carried out under Section 301 of the Trade Act of 1974, which allows the government to retaliate against trade practices considered unfair or in violation of global norms.
According to 301 guidelines, the tariff is expected to double to 50% on solar cell imports this year. Tariffs on certain Chinese steel and aluminum products will rise to 25% this year. Tariffs on computer chips will double to 50% by 2025.
For lithium-ion EV batteries, tariffs will increase from 7.5% to 25% in 2024. But for non-EV batteries of the same type, the tariff increase will be implemented in 2026. There are also higher tariffs on ground shipping. cranes, critical minerals and medical products.
The new tariffs, at least initially, are largely symbolic, as they will only apply to about $18 billion in imports. New analysis from Oxford Economics estimates that the tariffs – which would be implemented over time – will have a barely noticeable impact on inflation, increasing inflation by just 0.01%.
Still, Chinese authorities expressed their frustration with the measure.
Chinese embassy spokesman Liu Pengyu rejected US allegations that Beijing encouraged excess factory capacity to dominate global trade in these products. He also said that more expensive EVs and solar panels will make the transition from fossil fuels to renewable energy more difficult.
“Despite its stated willingness to strengthen cooperation with China on climate change, the US has trumpeted so-called ‘excess capacity’ in China’s new energy sector and promised to impose additional tariff increases on Chinese electric vehicles and solar products.” , said Liu. . “This is counterproductive.”
The Chinese economy has been slowed by the collapse of the country’s housing market and previous pandemic lockdowns, prompting Chinese President Xi Jinping to try to boost growth by increasing production of electric vehicles and other products, out-producing the Chinese market. can absorb.
This strategy further aggravates tensions with a US government that claims it is determined to strengthen its own industry to compete with China, avoiding a greater conflict.
“China’s industry-led recovery and weak consumption growth, which are translating into excess capacity and aggressive demand for foreign markets, coupled with the impending election season in the US, add up to a perfect recipe to increase US trade shares with China”, he stated. Eswar Prasad, professor of trade policy at Cornell University.
Chinese production of electric vehicles and other green products is “coming to be seen by the US as a zero-sum game in which China plays the spoiler that could hinder the industry’s revival in the US,” Prasad said.
Europeans are also worried. The EU launched an investigation last fall into Chinese subsidies and could impose an import tax on Chinese EVs.
Following Xi’s visit to France last week, European Commission President Ursula von der Leyen warned that government-subsidized Chinese electric vehicles and steel “are flooding the European market. … The world cannot absorb China’s surplus production. Therefore, I encouraged the Chinese government to address these structural overcapacities.”
The Biden administration sees China’s subsidizing its own production as an attempt to globally control the electric vehicle and clean energy sectors, while asserting that its own industrial support is aimed at securing domestic supplies to help satisfy US demand.
“We do not intend to have global dominance of the manufacturing industry in these sectors, but we believe that, because these are strategic industries and for the sake of the resilience of our supply chains, we want to make sure that we have healthy and active companies”, he said the treasure. Secretary Janet Yellen told reporters on Monday.
The tensions go far beyond a trade dispute and involve 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, potentially giving it greater influence in geopolitics. At the same time, the United States says it seeks countries to operate according to the same standards so that competition can be fair.
For its part, China maintains that the tariffs violate global trade rules that the United States originally helped establish through the World Trade Organization.
Chinese Foreign Ministry spokesman Lin Jian said on Friday that the new tariffs worsened problems caused by tariffs that the Trump administration had previously imposed on Chinese goods, which Biden maintained.
“Instead of ending these wrong practices, the US continues to politicize trade issues, abuse the so-called Section 301 tariff review process and plan tariff increases,” he said. “This will only double the US guilt.”
These issues are at the heart of November’s presidential election, with a bitterly divided electorate seemingly united behind the idea of getting tough on China. Biden and Trump have overlapping but different strategies.
Biden sees targeted tariffs as necessary to defend key industries and workers, while Trump has threatened broad 10% tariffs against all imports from rivals and allies.
Biden has staked his presidential legacy on the U.S. overtaking China with its own government investments in factories to make electric vehicles, computer chips and other advanced technologies.
“So far, we have created $866 billion in private sector investment across the country – almost a trillion dollars – historic amounts in such a short time,” Biden said last week in Wisconsin. “And that is literally creating hundreds of thousands of jobs.”
Trump tells his supporters that America is falling even further behind China by not relying on oil to continue fueling the economy, despite the risks of climate change. The former president may believe tariffs can change Chinese behavior, but he believes the U.S. will depend on China for electric vehicle components and solar cells.
“Joe Biden’s economic plan is to make China rich and America poor,” he said at a rally earlier this month in Wisconsin.
