New York Times article by Jim Tankersley and Alan Rappeport, April 18, 2024
President Biden's trillion-dollar efforts to revive U.S. manufacturing and accelerate the transition to clean energy are clashing with China's surge in cheap exports and threaten to put Biden's economic agenda at the heart of his investment and jobs.
Mr. Biden is weighing new measures to protect emerging industries such as electric vehicle production and solar panel manufacturing from Chinese competition. On Wednesday in Pittsburgh, the president called for higher tariffs on China's steel and aluminum products and announced a new trade investigation into China's heavily subsidized shipbuilding industry.
"I don't want to fight China," Mr. Biden said. What I seek is competition, fair competition."
Labor unions, manufacturing groups and some economists say the administration may need to do more to limit Chinese imports if it wants to ensure that Mr. Biden's sprawling industrial plan is not overwhelmed by low-cost Chinese versions of the same emerging technologies.
"This is a very clear and present danger because the Biden administration's industrial policy is not primarily focused on traditional low-skilled, low-wage manufacturing, but on new, high-tech manufacturing," said Eswar Prasad, an economist at Cornell University who specializes in trade policy.
"And these are just a few of the areas where China is increasing its investment," he said.
Both the United States and China are using massive government subsidies to spur economic growth and try to dominate what they believe will be the most important global market of the century: technologies designed to accelerate the global transition away from fossil fuels to avoid catastrophic climate change.
However, the way they finance these industries is very different. Chinese officials poured large sums of money into factories, including highly attractive loans from state-owned banks to companies that might otherwise not survive to help offset the housing crisis and weak domestic consumption. These plants often rely on low-cost labor to operate.
Chinese factories now tend to export goods at much lower prices than their competitors, fueling the Chinese economy. Other countries say that in some cases, Chinese companies sell their products abroad at a loss.
Mr. Biden has also poured federal money into targeted industries, hoping to sow innovation and open new paths for the middle class through good-paying jobs. He signed an infrastructure law, a semiconductor-focused advanced manufacturing law, and a full suite of production incentives included in his climate law, the Inflation Reduction Act. The spending and tax cuts under these laws have prompted companies to announce hundreds of billions of dollars in new U.S. factory investment plans.
Some of this assistance comes with strings attached. The government requires businesses to pay relatively high wages or provide child care to workers as a condition of accessing federal funding. Other credits are conditional on the use of parts and components mined or produced in the United States. Mr. Biden has pinned his re-election proposition on creating more good-paying jobs, especially union jobs, but some economists worry that these efforts to change corporate behavior will undermine his core industrial policy goals.
Mr. Biden and his economic team increasingly see Chinese imports as a direct threat to the president's agenda. They are weighing new and higher tariffs on some strategic products imported from China and have launched several investigations into Chinese technology, such as software and other components for electric vehicles and other connected cars.
Administration officials are aware that the surge in cheap steel and aluminum exports from China over the past few decades has hollowed out the U.S. manufacturing hub. Heavily subsidizing exports of solar panels, batteries and electric vehicles has helped curb inflation and combat climate change, but government officials argue that job losses and business closures are too likely, both politically and economically.
These competing goals are a challenge as the Biden administration tries to persuade China to reduce production of clean energy technologies.
"On the one hand, the Biden administration is doing everything it can to increase consumption of renewable energy products," said Scott Lincicombe, a trade expert at the Cato Institute, a liberal research center. On the other hand, it warns China not to sell cheap renewable energy products, which will increase US consumption of the products we are trying to encourage".
During a visit to China last week, U.S. Treasury Secretary Janet Yellen cautioned her Chinese counterparts against unfair trade practices. Before Mr. Biden's speech in Pittsburgh on Tuesday, administration officials expressed concerns about China's manufacturing production.
Lyle Brainard, director of the White House National Economic Council, said in a call with reporters: "China's policy-driven overcapacity poses a serious risk to the future of the U.S. steel and aluminum industry. China will not be able to recover through exports. China is too big to play by its own rules."
Chinese officials have made similar complaints about the Biden administration. In response to a new investigation into the Chinese government's shipbuilding subsidies, officials from China's Ministry of Commerce issued a statement saying that "the development of Chinese industry is the result of Chinese companies' technological innovation and active participation in market competition," rather than unfair state support.
"We urge the U.S. side to respect facts and multilateral rules, immediately stop its erroneous practices, and return to the rules-based multilateral trading system," the officials said.
But Americans are not alone in their dissatisfaction with China's new wave of exports. European leaders have raised similar concerns, including German Chancellor Olaf Scholz, who complained during an official visit to Beijing this week that Chinese goods are being sold at a loss in Europe.
The European Union is investigating China's imports of electric vehicles, which could eventually impose tariffs on these products. The European Union has already begun imposing a carbon border tax, which is expected to hit China, which has lax environmental regulations. The new plan will impose tariffs based on the carbon emissions from the production of imported goods. Mexico and Brazil are also conducting anti-dumping investigations against China, which could lead to new trade restrictions.
French Finance Minister Bruno Le Maire noted on Wednesday that Europe's deficit between exports and imports to China has tripled over the past 15 years, so more needs to be done to level the playing field.
"Europe has to show its teeth on trade and trade relations," Mr. Le Maire said, explaining that while a trade war can cause damage, Europe should accept the industrial policies adopted by China and the United States.
"I just want to emphasize that Europe needs to better protect its economic and industrial interests," he said.
The United States and its allies have struggled in the past to coordinate responses to the threat posed by Chinese competition to their domestic industries. Mark Heiver, chief investment officer at UBS Global Wealth Management, said that could change this time around. He said the success of China's manufacturing exports could be a catalyst for a "more coordinated response" between the United States and Europe on trade issues.
At the spring meetings of the International Monetary Fund and the World Bank this week, tougher protectionist arguments began to show. The IMF warns that tariffs are a threat to the global outlook, while top economic policymakers explain why they believe measures to protect domestic industries are necessary.
Commenting on China's spending on green energy technologies, Ms. Yellen said: "There has been a surge in investment in manufacturing, and capacity utilization in these sectors is very low. With these subsidies, capacity exceeds global demand, and it is even likely to exceed global demand in the next decade."
"So it's not a level playing field," she added.
The U.S. government is under more pressure to protect U.S. industry. Senator Sherrod Brown, Democrat of Ohio, who is facing a tough re-election race, called on Mr. Biden last week to ban Chinese electric vehicles that are already facing high tariffs. He called Chinese electric vehicles "an existential threat to the U.S. auto industry."
Mr. Biden's announcement in 2022 of suspending two-year tariffs on imported Chinese solar panels effectively allowed more Chinese solar panels to enter the U.S. market upset Mr. Brown and other manufacturing supporters. He vetoed a bipartisan bill in 2023 that would reinstate the tariffs before the two-year moratorium expires in June 2024.
He is also under pressure to raise tariffs on Chinese electric vehicles or other clean energy technology components. Brad Césaire, a senior fellow at the Council on Foreign Relations in Washington and a former adviser to the U.S. Trade Representative under Mr. Biden, said the current tariffs on EV battery packs are 7.5 percent, but the tariffs on components of those battery packs are 25 percent. He said the lower tax rate should be raised.
Mr. Setser also noted that China has long provided subsidies to companies that manufacture and source products in China, sometimes requiring them to be Chinese-owned.
"In order to build an industrial sector in which China has a first-mover advantage and a cost advantage, you need to have an isolated market and use some of the tools that China is already using," he said.