Biden does the full Trump on China tariffs

US President Joe Biden has approved substantial rises in tariffs for electric vehicles and other green and medical products from China after a review of Trump-era tariffs.

| 11 min read

The US has completed a review of the Trump anti-China tariffs from 2018 and confirmed they are still needed. US Trade Representative Katherine Tai reported a disappointing response from China to US demands that it improved its handling of intellectual property and her conduct of foreign trade.

US President Joe Biden has approved substantial rises in tariffs for various green and medical products as a result, saying that this might induce China to mend its ways. The immediate Chinese response is negative – and Beijing reserves the right to retaliate. Electric cars are the headline grabbing example, with a tariff of 100% on imported Chinese vehicles. Tariffs on solar cells and panels, syringes, needles and semiconductors are doubled to 50%. These are measures designed to encourage and protect US production of these items.

China is discovering you can be too successful. In recent years, China has responded to Western-led wishes to travel the road to net zero. Seeing this as a huge set of business opportunities China set about dominating the design and production of wind turbines, solar panels, large batteries and electric cars.

China was thorough and sought to capture the full range of work and value added. The country entered a number of overseas partnerships and made overseas investments in the deposits of critical minerals and rare earths for the electrical revolution. The domestic market for electrical products was heavily subsidised, and regulations for air quality and other matters buttressed the movement to a more electric future at home.

The US has several ways to restrict imports

China established an early dominance in solar panels. President Barack Obama introduced high tariffs on these goods in 2012. China shifted some final processing of the manufacture to facilities in Malaysia, Thailand and Vietnam. With 80% market share, China earns a good living now from the panels.

The US pays higher prices as a result of continuing tariffs. The US has a variety of means of reducing or blocking imports. Anti-dumping tariffs are allowed under World Trade Organisation (WTO) rules, where a country may impose tariffs to offset subsidies and artificially low prices on imports. There are tariffs under Section 201 of the US Trade Act, which allow restriction of imports by tariffs where there is a disruptive surge in foreign product. There are Section 301 tariffs which can be imposed where there are discriminatory or unreasonable practices by the exporting country. There is the Uyghur Forced Labour Prevention Act which bans goods that come from The Uyghur area of China.

These latest changes to Section 301 tariffs are part of a range of measures. The US will continue to use subsidies to onshore more investment in capacity to produce these items at home – and is investigating the security issues around such Chinese dominance.

China has leapfrogged to be the world’s largest producer of electric cars. Electric cars had a 37% market share in China in 2023, thanks to subsidies and other promotions and the roll out of a substantial charging infrastructure. The car makers have designed smaller and cheaper electric cars than their Western competitors, making them more popular and affordable. The bottom of the range small Seagull sells for around $12,000 in China and is thought to be a good runabout in the cities for the growing urban population. China’s overall output of electric cars has expanded from just over one million in 2018 to more than six million last year and could rise to 8m by 2027.

China now wishes to sell more of its growing and surplus production abroad. Thailand and Brazil are leading markets so far, with some sales into Europe. There are the electric MG cars and the up-market Seal in some European showrooms. The Seagull mini is sold in some Latin American markets.

The main US and European car makers have tended to design and make expensive larger cars with batteries, limiting the potential market as they are too costly for most buyers. Governments want people to buy more electric cars rather than petrol or diesel vehicles but are held back for want of enough affordable local product. China has been working away trying to combine the move to electrical vehicles with greater automation of the car, as they seek the eventual driverless vehicle. Mobile phone technology is being combined with vehicle engineering.

Western carmakers demand tariffs

The Alliance for American manufacturing has warned that cheap Chinese imports could “end up being an extinction level event for the US auto sector”. Treasury Secretary Janet Yellen has warned against Chinese imports flooding the market in cars and other green products. Elon Musk has taken much of his Tesla activity to China, recognising its strengths and advantages in this market. The tariff campaigners can point to substantial subsidies directed to Chinese electric car makers, particularly in the early stages, and to the state support for the related infrastructure and to creating more domestic demand for these products.

President Biden’s Inflation Reduction Act increased the range and level of subsidies for home manufacture of a range of green products, including battery cars. The President is well aware of Mr Trump’s warnings that the Democrat policy of more rapid progress to ‘net zero’ could lead to the closure of much of the traditional car industry. If this was based on import surges from China, it would be widely disliked by voters.

China, as the world’s largest manufacturer, needs plenty of energy of all kinds.

This has led President Biden to adopt Trump like policies of higher tariffs and some bans against Chinese product. There is currently a US enquiry underway into the danger of Chinese vehicles being able to eavesdrop on their owners and track details of their movements and lives through the car computer. Views of China are largely negative in much of the US, so both candidates are keeping up anti-China rhetoric.

China points out that there has been a large investment in solar and wind generation of power domestically in recent years, and claims that in due course they will start to reduce their high and rising output of carbon dioxide. Despite this, China generated 63% of its electricity from coal in 2021, given its substantial coal reserves. Recent investment has included more coal-fired power stations.

China, as the world’s largest manufacturer, needs plenty of energy of all kinds, and generates around 30% of world electricity. One of the main reasons for adopting more battery cars in China has been the need to cut air pollution in large cities. Putting more battery cars on the road that will be recharged by power generated largely from coal does not do a great deal to lower carbon dioxide.

Tariffs here to stay

Both the US and Europe will use flexibilities in WTO rules to impose tariffs and selective bans on Chinese exports of green products. Both see this as essential to allow more time for home industry to adapt to the new product range governments are keen to encourage. So far, Western car makers have mainly produced expensive battery cars for the well off and are struggling to develop and sell popular affordable cars.

Years of tariffs and investment encouragement has not stemmed the flow of Chinese solar panels. China’s position in wind equipment remains dominant, with a majority share of the world market. This latest round of tariff increases and regulatory interventions may stem the flood of Chinese product at the cost of raising prices or keeping them higher. It will take time to build more domestic capacity to meet market demands and to create demand for cheaper and smaller electric cars.

China will continue to probe Western industrial defences, seeking ways to make products in places that still have tariff free access to the US and Europe. China may also want to place plants in the US and Europe, or acquire capacity in the US and Europe controlled by older car making brands and adapt it. There will be more efforts to develop better and cheaper batteries, and to find combinations of raw materials that reduce Chinese dominance. The West has laid out the need for an electrical revolution but has been remiss about creating the industrial capacity to service it. An opportunistic China has the products but will encounter more limits on her exports. More protectionism means higher prices and higher taxes. It also provides investment opportunities in the companies that are on the right side of the various barriers, benefitting from government support.

Statement from The White House:

Section1. Tariffs. (a) The Trade Representative shall maintain, as appropriate and consistent with this memorandum, the ad valorem rates of duty and lists of products subject to the two actions, taken under the section 301 investigation. To further encourage China to eliminate the acts, policies, and practices at issue, and to counteract the burden or restriction of these acts, policies, and practices, the Trade Representative shall modify the two actions to increase section 301 ad valorem rates of duty for the following products from China:

• Battery parts (non-lithium-ion batteries): Increase rate to 25 percent in 2024;

• Electric vehicles: Increase rate to 100 percent in 2024;

• Lithium-ion electrical vehicle batteries: Increase rate to 25 percent in 2024;

• Lithium-ion non-electrical vehicle batteries: Increase rate to 25 percent in 2026;

• Natural graphite: Increase rate to 25 percent in 2026;

• Other critical minerals: Increase rate to 25 percent in 2024;

• Permanent magnets: Increase rate to 25 percent in 2026;

• Semiconductors: Increase rate to 50 percent in 2025;

• Ship to shore cranes: Increase rate to 25 percent in 2024;

• Solar cells (whether or not assembled into modules): Increase rate to 50 percent in 2024; and

• Steel and aluminum products: Increase rate to 25 percent in 2024.

For personal protective equipment (facemasks, medical gloves, and syringes and needles), the Trade Representative is directed to increase rates of duty to no less than the rates indicated:

• Facemasks: Increase rate to 25 percent in 2024;

• Medical gloves: Increase rate to 25 percent in 2026; and

• Syringes and needles: Increase rate to 50 percent in 2024.

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Biden does the full Trump on China tariffs

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