By David Lawder
WASHINGTON (Reuters) – The Biden administration’s new tariffs on Chinese electric vehicles and other strategic sectors are aimed at protecting the future of the U.S. manufacturing industry, but will likely accelerate a shift of Chinese production to Mexico, Vietnam and elsewhere to avoid them .
U.S. officials and trade experts say that without major efforts to cut transshipped or lightly processed Chinese products coming from Mexico and other countries, China’s undervalued excess production will still reach U.S. markets.
“The new tariffs may block imports from China, but it is likely that many of these imports could be diverted through countries not subject to the tariffs,” said Eswar Prasad, professor of trade policy at Cornell University and former director for the China at the International Monetary Center. Bottom.
Mexico and Vietnam in particular have benefited from escalating trade tensions between the US and China due to their lower costs and proximity, Prasad said, adding that both need to avoid Washington’s “wrath” while harvesting new investment. industrial.
Mexico, for example, has overtaken China as the top source of imports for the US, with more than $115 billion worth of goods coming from there in the first three months of 2024, compared to less than $100 billion coming from China. .
With this increase have come concerns about Mexico becoming a transshipment hub for Chinese goods to circumvent US tariffs, due to increased US imports of steel products from Mexico and Chinese electric vehicle maker BYD looking for locations to a Mexican factory that could potentially supply the US market. . Reuters reported last month that U.S. officials pressured Mexico to refuse investment incentives to Chinese automakers.
Punitive duties on Chinese electric vehicles will soon be quadrupled to more than 100% under President Joe Biden’s new tariff hikes on high-tech imports from China. The action also includes a doubling of taxes on semiconductors and solar cells to 50% this year and new 25% tariffs on critical minerals for Chinese batteries, Chinese graphite and EV battery magnets over the next two years.
The tariffs are intended to protect new domestic industrial sectors that the Biden administration is trying to develop with hundreds of billions of dollars in tax incentives and grants.
‘FACT PATTERN’ PROBLEM
U.S. Trade Representative Katherine Tai told reporters she was concerned about Mexico’s trade relationship with China and should “stay tuned” for future separate efforts to avoid tariff evasion issues.
“The fact pattern that is developing is of great concern to us, and at USTR we are looking at all of our tools to see how we can resolve the issue,” Tai said.
Mexico benefits from virtually zero US tariffs under the US-Mexico-Canada trade agreement, while the US Department of Commerce is considering granting Vietnam “market economy” status, which would reduce anti-dumping duties on Vietnamese imports.
Another USTR official, senior adviser Cara Morrow, told Reuters in an interview before China’s tariff announcement that the trade agency has been engaging with Mexican counterparts about ways to reduce the growing transshipment of Chinese steel and aluminum through Mexico.
Biden’s measure increases “Section 301” duties on steel from 7.5% to 25%, but there are also 25% national security tariffs and triple-digit anti-dumping and anti-subsidy duties on many steel products Chinese.
U.S. officials made it clear to Mexico that the purpose of the USMCA was to promote North American integration and competitiveness, “not to provide a backdoor to China,” Morrow said, adding that both sides want to prevent it from becoming problem in the near future. 2026 review of the trade agreement.
Under the pact put into effect in July 2020, the three countries could attempt to renegotiate or terminate the USMCA after six years.
The USTR is discussing Mexico’s anti-dumping duties on steel and aluminum and better monitoring imports and exports of the metals and other steps in “difficult” negotiations, but Mexican officials also see Chinese overproduction as a threat to its own economy, Morrow said.
Biden’s move could also put more pressure on Europe by diverting excess Chinese production of electric vehicles, solar products, batteries and steel to its shores, where EU trade protections are generally lower.
Trying to block excess Chinese production “is like squeezing a balloon. It shrinks in one place and comes out in another,” said William Reinsch, a trade expert at the Center for Strategic and International Studies in Washington.
(Reporting by David Lawder in Washington; Editing by Dan Burns and Matthew Lewis)
