The United States once again wielded the "tariff stick", or just punched the cotton

On the evening of May 14, the Biden administration officially announced that it would impose tariffs on $18 billion worth of products imported from China under Section 301 of the Trade Act of 1974.

New U.S. Tariff Statement; Image source: Screenshot of the official website of the White House

The U.S. "tariff stick" is once again swinging at China's strategic industries

According to the U.S. government's statement, the tariffs cover strategic sectors such as electric vehicles, batteries, critical minerals, steel and aluminum, semiconductors, solar cells, ship-to-shore cranes and medical products.

Based on Section 301, the U.S. tariff rate on Chinese electric vehicles will increase from 25% to 100% in 2024.

The U.S. claims that "China's EV exports grew by 70% from 2022 to 2023 due to the significant risk of overcapacity due to heavy subsidies and non-market practices, jeopardizing productive investment elsewhere." Imposing 100% tariffs on Chinese electric vehicles would protect U.S. manufacturers from China's unfair trade practices. "This action is designed to ensure that the future of the U.S. auto industry will be made in the United States by U.S. workers.

The U.S. tariff rate on lithium-ion EV batteries from China will increase from 7.5% to 25% in 2024, while the tariff rate on lithium-ion non-EV batteries will increase from 7.5% to 25% starting in 2026; Tariffs on battery components from China will also increase from 7.5% to 25% in 2024. The tariff rate on natural graphite and permanent magnets will increase from 0 to 25% in 2026; Tariff rates on some other critical minerals will increase from zero to 25% in 2024.

The U.S. claims that "China currently controls more than 80 percent of certain parts of the EV battery supply chain, particularly upstream nodes such as the mining, processing, and refining of critical minerals." And the concentration of critical minerals mining and refining capacity in China makes U.S. supply chains vulnerable and puts U.S. national security and clean energy goals at risk. ”

By 2025, the tariff rate on semiconductors will increase from 25% to 50%.

The U.S. government said China's policies in the traditional semiconductor industry have led to market share growth and rapid capacity expansion, and that China is expected to account for half of all new capacity for traditional semiconductor wafers over the next three to five years, "which could drive out investment from market-driven companies."

Tariff rates on certain steel and aluminum products under Section 301 will increase from 0-7.5% to 25% in 2024.

Steel is an important sector of the U.S. economy. But the U.S. believes that U.S. workers continue to face unfair competition from China's steel and aluminum overcapacity, and that raising tariff rates on steel and aluminum will protect the U.S. steel and aluminum industry.

By 2024, the tariff rate on solar cells, whether assembled into a template or not, will increase from 25% to 50%.

The U.S. argues that China currently controls 80 to 90 percent of the global solar cell supply chain and is trying to maintain this status quo, "inhibiting the development and investment of solar capacity outside of China."

By 2024, the tariff rate for ship-to-shore cranes will increase from 0% to 25%.

Harbour cranes are an important part of the infrastructure that enables the continuous movement of critical cargo in and out of the U.S. and within the U.S., and the U.S. move is intended to encourage the return of port crane manufacturing capacity to the U.S.

In 2024, tariffs on syringes and needles will increase from 0% to 50%, and tariffs on some personal protective equipment (PPE, including respirators and masks) will increase from 0-7.5% to 25%; In 2026, tariffs on rubber medical and surgical gloves will increase from 7.5% to 25%.

Under the guise of "protecting enterprises and workers", trade protection and suppression are implemented

The Biden administration claims that "China's unfair trade practices in technology transfer, intellectual property, and innovation have given it control of 70%, 80, or even 90% of the world's critical products," and that the tariff hike is intended to protect "strategically important" U.S. industries and workers.

In other words, China's rapid development in key areas such as electric vehicles in recent years, as well as its position in the global supply chain, have given the United States a sense of backwardness. Wielding the "tariff stick" against China's advantageous industries is essentially the latest part of the recent "overcapacity" offensive launched by the United States against China, which is still essentially the implementation of trade protection and suppression.

China strongly opposes the U.S. approach and vows to take all necessary measures to safeguard its legitimate rights and interests.

"The U.S. Section 301 tariff hike violates President Biden's commitment not to seek to suppress and contain China's development and 'not to seek to decouple and sever ties with China,'" China's Commerce Ministry said in a statement, adding that the move would "seriously affect the atmosphere of bilateral cooperation."

Chinese Foreign Ministry spokesman Wang Wenbin also responded at a regular press conference on the 14th that China has always opposed unilateral tariffs in violation of WTO rules, and the United States has expressed its willingness to strengthen cooperation with China on climate change, while hyping up the so-called "overcapacity" of China's new energy, and imposing high tariffs on China's electric vehicles and solar products. This paradoxical approach not only runs counter to the consensus reached at the San Francisco summit between China and the United States on cooperation to address the climate crisis, but will also undermine the green transformation of the world economy and undermine global efforts to combat climate change.

New tariffs or just "fist on cotton"

The United States wielding the stick of tariffs on China's key industries is actually nothing new. During the Trump administration, the United States imposed tariffs on Chinese imports under the guise of "national security". So did the United States achieve what they wanted? The answer is almost no. As Xinhua News Agency commented, starting with the Trump administration, US protectionist measures have invariably been just a "boomerang"-style self-injury game. The United States has imposed protectionist measures on the domestic steel industry, but it has failed to prevent the loss of jobs, competitiveness and market share. The U.S. has imposed tariffs on Chinese goods exported to the U.S., but it has led to high inflation in the U.S. and misery for consumers......

Whether the new round of tariffs can "protect American companies and workers and consolidate their industrial advantages" as Biden wishes, industry insiders and international public opinion also disagree.

Bloomberg reported on Monday that Washington's tariff hike was more of a symbolic move, because the taxed Chinese industries are not dependent on the U.S. market and consumers. In the case of electric vehicles, for example, Chinese EV exports to the US are actually very small, and Chinese EVs were blocked from the US market a few years ago because of the existing tariffs. Geely was the only Chinese automaker to export cars to the U.S. in the first quarter of this year, with only 2,217 vehicles exported, according to the China Passenger Car Association.

Most of the other cars imported from China are sold under American brands, led by General Motors' Buick brand. According to U.S. government data, there are currently four model families in the U.S. market that are made in China: the Lincoln Nautilus SUV, the Buick Envision SUV, the Polestar 2 and the Volvo S90 sedan. Polestar and Volvo are actively looking to localize production in the United States.

As a result, the new tariffs are likely to hit U.S. and other foreign automakers harder than Chinese automakers, especially if China follows up with retaliatory tariffs. According to the latest data from the U.S. government, U.S. automakers exported 155,337 vehicles worth $6.3 billion to China in 2021. In the same year, China exported only 64,067 vehicles to the United States, most of which were domestic American brands, worth $1.45 billion. If China retaliates with retaliatory tariffs, it could also hurt BMW that opens a new plant in Spartanburg, South Carolina, which exports about 25,000 vehicles a year to China, or Mercedes-Benz, which opens a new plant in Alabama, where Mercedes-Benz also sells electric SUVs in the Chinese market.

The same is true for the solar industry, which has a small U.S. solar market for China, which exported $3.35 million worth of solar cells to the U.S. last year, less than 0.1 percent of China's total exports. During the same period, China's exports of finished solar panels to the United States amounted to $13.15 million, accounting for only 0.03% of China's solar panel exports. In addition, Chinese solar companies mostly export to the United States from overseas, avoiding similar tariff restrictions.

Some analysts also said that the impact of the new tariff hike on China in the short term may be limited. Chinese exports of electric vehicles, medical supplies and semiconductor products to the United States account for only 5.9 percent of China's total exports to the United States, less than 1 percent of China's total exports, Nomura analysts said in a note.

Therefore, the new US tariffs may only hit China's key industries with a "fist on cotton". Not only that, but it could also be "shooting yourself in the foot". Industry executives and some analysts say the new U.S. tariffs could also push up the cost of electric vehicles, batteries and other EV hardware, keeping the overall price of electric vehicles high. According to the U.S. Department of Transportation, 30 to 51 percent of the components for U.S.-based brand electric vehicles, such as the Mustang Mach-E or Tesla Model 3, come from China. Automakers say electric vehicles would be too expensive for mainstream U.S. consumers without low-cost batteries and battery materials made in China, which would slow electrification in the U.S.

Separately, advocates of accelerating the adoption of electric vehicles to reduce U.S. carbon dioxide emissions warn that reducing pressure from Chinese EV makers will backfire. In the long run, Detroit automakers, insulated from Chinese competition, could repeat the experience of the '70s and '80s, when U.S. import restrictions on Japanese cars gave domestic automakers a respite from lower-priced competitors, but these trade barriers prompted Toyota, Honda and Nissan to port their lean production systems to new factories in the United States. In the '90s, the success of North American-made Japanese cars forced General Motors, Ford, and the former Chrysler (now known as Stellantis) to lay off thousands of workers and make painful overhauls.

Daniel Becker of the Center for Biological Diversity, an environmental group in the United States, said: "If General Motors, Ford and Stellantis didn't have to compete with foreign companies that make electric vehicles, they probably wouldn't be making electric vehicles." At that time, the market will shift to manufacturers such as BYD that plan to produce electric vehicles in North America, and American automakers will repeat the mistakes of the seventies and eighties of the last century. ”

To sum up, considering the cumulative effect of the stock of U.S. trade barriers to China in the early stage, coupled with the limited number of related products that China currently exports to the U.S. market, even if the new tariffs do land, most of them will only add "loneliness", on the contrary, they may also have a "backlash" on the U.S. industry.

As Xinhua News Agency commented: "The new round of tariffs seems to be menacing, but just like the protectionist policies pursued by the United States before, as the 'boomerang effect' of the tariffs on China gradually emerges, it is the American consumers, the American industrial development itself and the global green transformation process that will be hurt the most." ”