Biden increases tariffs on Chinese electric vehicles, solar cells, steel and aluminum – increasing tensions with Beijing

WASHINGTON (AP) — The Biden administration has announced plans to impose new tariffs on Chinese electric vehicles, advanced batteries, solar cells, steel, aluminum and medical equipment — a move this election year that is likely to increase friction between the world’s two largest economies will increase.

The tariffs come amid a heated campaign between President Joe Biden and his Republican predecessor, Donald Trump, as both candidates battle to show who will be tougher on China.

The rates are unlikely to have a major inflationary impact because of the way they are structured. Administration officials said they believe the tariffs will not escalate tensions with China, but still expect China to explore ways to respond to the new taxes on their products. It is uncertain what the long-term impact on prices could be if the tariffs contribute to a broader trade conflict.

The tariffs will be phased in over the next three years, with the tariffs taking effect in 2024 on electric vehicles, solar cells, syringes, needles, steel and aluminum and more. There are currently very few electric vehicles from China in the U.S., but officials are concerned that low-priced models, made possible by Chinese government subsidies, could soon flood the U.S. market.

Chinese companies can sell electric cars for as little as $12,000. Their solar cell factories and steel and aluminum plants have enough capacity to meet much of the world’s demand, with Chinese officials claiming their production would keep prices low and promote a transition to the 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 the U.S. national security and economic stability.

China is simply too big to play by its own rules, Brainard told reporters Monday during a preview of the announcement.

Government officials have emphasized that the decision on tariffs was made independently of November’s presidential election. But Brainard noted in her remarks that the tariffs would help workers in Pennsylvania and Michigan, two of the battleground states that will decide who wins the election.

According to the findings of a four-year study on trade with China, the tax rate on imported Chinese EVs will rise to 102.5% this year, up from the overall level of 27.5%. The review was carried out under Section 301 of the Trade Act 1974, which allows the government to retaliate against trade practices deemed unfair or contrary to global standards.

According to the 301 guidelines, the tariff must double this year to 50% on the import of solar cells. Tariffs on certain Chinese steel and aluminum products will rise to 25% this year. Computer chip tariffs will double to 50% by 2025.

For lithium-ion EV batteries, the rates will increase from 7.5% to 25% in 2024. But for non-EV batteries of the same type, the rate increase will be implemented in 2026. There are also higher rates on ship-to-shore cranes, critical minerals and medical products.

The new tariffs are largely symbolic, at least initially, as they will apply to only about $18 billion of imports. A new analysis from Oxford Economics estimates that the tariffs – which would be introduced over time – will have a barely noticeable impact on inflation, pushing inflation up by just 0.01%.

Still, Chinese officials expressed frustration with the measure.

Chinese embassy spokesman Liu Pengyu rejected US claims that Beijing has encouraged excess factory capacity to dominate global trade in these goods. He also said that more expensive electric vehicles and solar panels will make it more difficult to switch from fossil fuels to renewable energy.

Despite its willingness to strengthen cooperation with China on climate change, the US has ramped up so-called “overcapacity” in China’s new energy sector and pledged to impose additional tariff hikes on Chinese electric vehicles and solar products, Liu said. “This is self-defeating.”

China’s economy has slowed due to the collapse of the country’s real estate market and previous pandemic lockdowns, prompting Chinese President Xi Jinping to boost growth by ramping up production of electric vehicles and other products, bringing more is earned than the Chinese market can absorb.

The strategy is exacerbating tensions with a U.S. administration that claims it is determined to boost its own manufacturing to compete with China while avoiding a wider conflict.

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“China’s factory-led recovery and weak consumption growth, which translates into overcapacity and an aggressive search for foreign markets, together with the approaching US election season, present a perfect recipe for escalating US trade frictions with China,” said Eswar Prasad. , professor of trade policy at Cornell University. Chinese production of electric vehicles and other green products is seen by the US as a zero-sum game in which China plays the spoiler that could hinder a revival of US manufacturing,” Prasad said.

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The Europeans are also concerned. The EU launched an investigation into Chinese subsidies last fall and could impose an import tax on Chinese electric vehicles.

Following Xi’s visit to France last week, European Commission President Ursula von der Leyen warned that government-subsidized Chinese electric cars and steel are “flooding the European market. … The world cannot absorb China’s excess production. That is why I have encouraged the Chinese government to address this structural overcapacity.”

The Biden administration sees China subsidizing its own manufacturing as an attempt to control the EV and clean energy sectors globally, while saying its own industrial support is aimed at securing domestic supplies to help meet US demand to fulfil.

We are not seeking global dominance of manufacturing 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 ensure that we have healthy and active businesses, said Finance Minister Janet . Yellen told reporters on Monday.

The tensions extend far beyond a trade dispute and dig deeper into questions about who runs the global economy as a seemingly indispensable nation. China’s policies could make the world more dependent on its factories, potentially giving China greater influence in geopolitics. At the same time, the United States says it aims to ensure that countries operate according to the same standards so that competition can be fair.

In turn, China claims 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 Friday that the new tariffs exacerbate problems caused by tariffs the Trump administration previously imposed on Chinese goods, which Biden has maintained.

Instead of putting an end to these bad 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 debt.”

These questions are at the heart of November’s presidential election, with a bitterly divided electorate seemingly united by the idea of ​​cracking down 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 on all imports from both rivals and allies.

Biden has staked his presidential legacy on the U.S. leading China with its own government investments in factories to make electric cars, computer chips and other advanced technologies.

So far, in such a short time, we have created $866 billion in private sector investment – ​​almost a trillion dollars – historic amounts, Biden said in Wisconsin last week. “And that literally creates hundreds of thousands of jobs.”

Trump is telling his supporters that America is falling further behind China by not betting on oil to power the economy despite the risks of climate change. The former president may believe tariffs can change Chinese behavior, but he believes the US will be dependent on China for EV components and solar cells.

Joe Biden’s economic plan is to make China rich and America poor, he said at a meeting in Wisconsin earlier this month.