The Biden administration unveiled plans to impose fresh duties on Chinese solar cells, electric cars, sophisticated batteries, steel, aluminum, and medical equipment. This election-year measure is expected to exacerbate tensions between the two biggest economies in the world.
The tariffs coincide with a contentious presidential campaign pitting President Joe Biden against his Republican opponent, Donald Trump, as the two seek to establish who is more resolute when it comes to China.
Because of their design, the tariffs are unlikely to have a significant inflationary effect.
Although administration officials believe that tensions with China won’t increase as a result of the tariffs, they do anticipate that China will look into measures to counter the additional levies on its goods.
If the tariffs spark a larger trade spat, it’s unclear what the long-term effects on pricing might be.
The tariffs will be applied gradually over the following three years, with the highest rates hitting EVs, solar cells, syringes, needles, steel, aluminum, and other items in 2024.
Although there aren’t many Chinese EVs on American roads right now, authorities are concerned that soon low-cost versions made possible by subsidies from the Chinese government may begin to flood the market.
EVs can be sold by Chinese companies for as cheap as $12,000. Chinese officials claim that their manufacturing keeps prices low and will help the country’s transition to a green economy.
Their steel and aluminum mills, as well as their solar cell plants, have adequate capacity to supply a large portion of the world’s demand.
Laptops 1000The tariffs, according to Lael Brainard, director of the White House National Economic Council, will drive up the price of some Chinese imports and impede Beijing’s attempts to control the market for cutting-edge technologies in ways that could jeopardize the national security and financial stability of the United States.
During a call with media on Monday to preview the news, Brainard stated, “China is simply too big to play by its own rules.”
Officials from the administration have emphasized that the tariff decision was taken apart from the presidential election in November.
However, Brainard pointed out in her speech that the tariffs would benefit workers in Michigan and Pennsylvania, two of the key states that would determine the outcome of the election.
Based on the results of a four-year assessment of trade with China, import taxes on Chinese electric vehicles (EVs) will increase this year to 102.5% from the current total of 27.5%.
Section 301 of the Trade Act of 1974, which permits the government to take retaliatory action against trade practices that are considered unfair or in violation of international standards, was used to fund the review.
This year, the duty rate on imports of solar cells is to double to 50% by the 301 rules.
This year, tariffs on a few Chinese steel and aluminum products will increase to 25%. By 2025, tariffs on computer chips will have doubled to 50%.
Tariffs on lithium-ion electric vehicle batteries will increase this year from 7.5% to 25%.
On the other hand, the tariff rise will take effect in 2026 for identical non-EV batteries. Additionally, there are increased tariffs on medical supplies, vital minerals, and ship-to-shore cranes.
Since the new duties will only apply to around $18 billion in imports, they are primarily symbolic, at least initially.
According to a recent Oxford Economics analysis, the tariffs will very slightly increase inflation—by 0.01%—making their effect on inflation hardly detectable.
The American action incited outrage from the Chinese Foreign Ministry. Wang Wenbin, a spokesman for the ministry, claimed that the United States is violating international trade and economic regulations as well as market economy principles by enforcing protectionism under the guise of free competition and suppressing other nations’ advanced industries.
Wang called it “a naked act of bullying.”
He noted that rather than so-called “subsidies,” China’s strong growth in new-energy sectors including electric vehicles (EVs), lithium batteries, and photovoltaic is due to technological innovation, a robust supply chain, and enough market competition.
Due to the collapse of the real estate market and previous lockdowns caused by the coronavirus pandemic, China’s economy has stagnated.
As a result, President Xi Jinping has increased production of electric vehicles (EVs) and other items, producing more than the country’s needs.
This tactic heightens hostilities with the US government, which maintains that it is committed to bolstering domestic manufacturing to rival China without escalating into a more protracted war.
According to Cornell University trade policy professor Eswar Prasad, “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 frictions with China.”
The Europeans are also concerned. The EU may levy an import tariff on Chinese electric vehicles (EVs) and began looking into Chinese subsidies last fall.
Laptops 1000Ursula von der Leyen, President of the European Commission, stated that “the world cannot absorb China’s surplus production” and that Chinese steel and electric vehicles (EVs) that are subsidized by the government “are flooding the European market” following Xi’s visit to France last week.
While China’s manufacturing subsidies are seen by Biden’s Democratic administration as an attempt by Beijing to gain worldwide domination over the electric vehicle and clean energy sectors, the administration claims that its industrial support is intended to ensure domestic supplies to help fulfill U.S. demand.
Treasury Secretary Janet Yellen stated, “We believe that 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. We do not seek to have global domination of manufacturing in these sectors.”
Deeper concerns about who dominates the global economy as an apparently indispensable nation are at the heart of the tensions, which extend far beyond a trade conflict.
China may gain more influence in geopolitics as a result of its policies, which could increase global reliance on its industries. To ensure fair competition, the United States claims to be working to have all nations operate under the same set of rules.
China claims that the tariffs are against international trade regulations that the US first contributed to establishing via the World Trade Organization.
It charges that the United States is still politicizing trade disputes and claimed on Friday that the latest penalties exacerbate the damage done by the Trump administration’s previous duties on Chinese goods—which Biden has retained.
A sharply divided electorate appears to be brought together by the idea of taking severe measures with China, and those issues are at the center of November’s presidential election. Trump and Biden employ similar but distinct tactics.
While Trump has threatened to impose sweeping 10% tariffs on all imports from both allies and opponents, Biden believes that tailored tariffs are necessary to protect important businesses and workers.
With his government investments in companies producing electric vehicles, computer chips, and other cutting-edge technologies, Biden has placed his presidential legacy on the United States surpassing China in this regard.
In Wisconsin last week, Biden declared, “We’ve created $866 billion in private-sector investment nationwide — almost a trillion dollars — historic amounts in such a short time.” And hundreds of thousands of jobs are being created as a result.
Trump informs his fans by not relying on oil to sustain economic growth despite its potential to contribute to climate change, America is lagging behind China.
Although the former president thinks tariffs can influence Chinese behavior, he also thinks China will continue to provide the United States with solar cells and EV parts.
Trump declared at a Wisconsin speech last month that Biden’s economic objective was to make China rich and America poor.
