(Bloomberg) — President Joe Biden’s administration is poised to unveil a sweeping decision on China tariffs as early as next week, a decision that is expected to hit key strategic sectors while rejecting the across-the-board hikes sought by Donald Trump. people familiar with the matter said.
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The decision is the culmination of a review of Section 301 tariffs first implemented under Trump starting in 2018. The new tariffs will focus on industries including electric vehicles, batteries and solar cells, with existing rates largely part maintained. An announcement is scheduled for Tuesday, two people said.
Although the decision may be delayed, it nevertheless represents one of Biden’s biggest moves in the economic race with China. The deal builds on his call last month to raise tariffs on Chinese steel and aluminum and the formal launch of a new investigation into China’s shipbuilding industry.
The yuan weakened on the news, while the CSI 300 index of Chinese stocks fell as much as 0.6% in early trading before rising. China’s Ministry of Foreign Affairs and Ministry of Commerce did not respond to requests for comment as of Friday morning local time.
“This will definitely make investors pause on stocks that are potentially exposed,” said Xin-Yao Ng, chief investment officer at abrdn, adding that many green technology brands such as battery giant Contemporary Amperex Technology Co. from the USA. “Everyone knows it’s a risk.”
Read more: China investors brace for impact of US tariff plan
President Xi Jinping’s strategy of increasing production to halt a domestic economic slowdown has triggered alarm abroad. US and European Union leaders have rebuked Beijing for state support that they say has fueled a deluge of cheap exports that threaten jobs in their markets. The EU launched an investigation into EV subsidies in October that could lead to additional tariffs by July.
The US is confronting China’s “unfair economic practices and industrial overcapacity,” Biden said last month. “I’m not looking for a fight with China. I look for competition, but fair competition.”
The tariffs would likely have little immediate impact on Chinese companies, as its world-leading electric vehicle makers have turned away from the U.S. market due to the tariffs. Its solar companies mainly export to the US from third countries to avoid restrictions, with US companies also seeking higher tariffs on that trade.
Biden and Trump are competing to be seen as tough on China as they head toward an electoral rematch in November. Biden signed a bill into law last month that started a countdown for video-sharing platform TikTok to divest itself of its Chinese parent ByteDance Ltd., or exit the U.S. market.
Trump has promised to increase tariffs on China across the board if he is re-elected, promising a 60% tax on all Chinese imports. Many Democrats rejected that approach, in part because it would raise prices for American consumers struggling with inflation.
During the last Trump administration, Washington and Beijing engaged in a trade war in which China retaliated with measures aimed at causing American heartache by targeting agricultural exports.
U.S. Senator Chuck Grassley, a Republican from Iowa, expects Beijing to respond again. “We know how China reacted when Trump imposed tariffs,” he said. “They hit agriculture with this. I can’t be sure China would hit agriculture the same way it did Trump, but they will fight back.”
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Biden’s announcement would be formally enacted by the office of U.S. Trade Representative Katherine Tai, who last month said she expected completion of a review that began in 2022 to end soon. The administration has been looking for ways to make tariffs more strategic and effective, she added.
The measure comes after Biden last month proposed new 25% tariffs on Chinese steel and aluminum, as part of a series of measures to strengthen the American steel sector and attract its workers in an election year. That pledge was seen as largely symbolic because China currently exports little of either metal to the US.
Beijing responded sparingly to the threat of restrictions on metals, imposing tariffs on U.S. propionic acid, an export market worth $7 million to the U.S. last year, according to customs data. Still, increasing tariffs on a broader spectrum of industries could provoke a stronger response from Chinese authorities.
The full range of existing duties covers imports, from industrial inputs such as microchips and chemicals to consumer goods including clothing and furniture. Trump imposed the first of the tariffs in 2018, citing Section 301 of the 1974 Trade Act.
For years, internal divisions prevented Biden’s team from reaching a consensus on what to do about tariffs. Some officials, including Treasury Secretary Janet Yellen, have argued that easing restrictions on household goods could help ease U.S. inflation.
Although the Biden administration considered the political implications of the tariff changes, the USTR in late 2022 began a legally required formal review of their impact. In the absence of such an assessment, the restrictions would have automatically begun to expire in mid-2022.
Under Trump, Washington and Beijing reached a so-called phase one deal in early 2020. That lowered some tariffs in exchange for China’s promise to combat intellectual property theft and increase its purchases of energy, agricultural and manufactured goods, along with services, by $200 billion in the two years to the end of 2021. China fell more than a third short of its promises.
Biden’s tariff change comes after his country’s turbulent relationship with China has stabilized in recent months amid a flurry of diplomatic engagements. After the US president met with his Chinese counterpart in California last November, Biden said they had made “real progress”.
–With assistance from Yujing Liu, James Mayger, Qizi Sun, Jennifer A. Dlouhy, Philip Glamann, Shikhar Balwani, Dan Murtaugh, Zhu Lin, and Sangmi Cha.
(Updates with the status of the EU investigation into Chinese EVs in sixth paragraph.)
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