Explain in detail what are the risks of the Biden administration's tariffs on $18 billion of Chinese goods?

On May 14, local time, the United States released the results of the four-year review of the additional 301 tariffs on China, announcing that on the basis of the original 301 tariffs on China, it will further increase the tariffs on electric vehicles, lithium batteries, photovoltaic cells, critical minerals, semiconductors, steel and aluminum, port cranes, personal protective equipment and other products imported from China.

In this regard, on the 14th, the spokesperson of the Ministry of Commerce issued a statement on the results of the four-year review of the US side imposing additional Section 301 tariffs on China, expressing China's resolute opposition and solemn representations.

A spokesperson for the Ministry of Commerce said that out of domestic political considerations, the US side abused the Section 301 tariff review procedure to further increase the Section 301 tariffs imposed on some Chinese products, politicizing and instrumentalizing economic and trade issues, which is a typical political manipulation, and China strongly disagrees with this. The WTO has long ruled that Section 301 tariffs violate WTO rules. Instead of correcting them, the US side has insisted on going its own way and making mistakes again and again.

A spokesperson for the Ministry of Commerce said that the US increase in Section 301 tariffs violates President Biden's commitment to "not seek to suppress and contain China's development" and "not seek to decouple and break the chain with China", and is not in line with the spirit of the consensus reached by the two heads of state, which will seriously affect the atmosphere of bilateral cooperation. The US should immediately correct its wrong approach and lift the additional tariffs imposed on China. China will take resolute measures to defend its rights and interests.

Cui Fan, a professor of the Department of International Trade of the School of International Business and Economics of the University of International Business and Economics, told the first financial reporter that on the whole, the Biden administration's tariffs on $18 billion of products this time are not only for the purpose of "competing" with former US President Trump in the election campaign to compete for voters, but also for the purpose of further suppressing China's emerging industries and competing for the share of the new energy industry.

"Although the amount of trade directly involved in electric vehicles and photovoltaic products is limited, the total amount involved in this US tax increase is $18 billion. That's $18 billion, which is a lot of money from nearly $18 billion after nearly six years of the Section 301 tariffs. Lithium batteries account for more than two-thirds of the $18 billion. Cui Fan explained.

Consideration one

It is the eve of the US election. In a report, the macro team of the Soochow Securities Research Institute classified the tariffs into five categories: for Rust Belt voters (steel and aluminum), technology sanctions (semiconductors), China's new three samples (lithium batteries, critical minerals, graphite permanent magnets and solar cells), national security (port cranes) and other so-called overcapacity (syringes and needles, surgical gloves and masks).

Tariffs on steel, aluminum and new energy products are seen as Biden's move to reverse electoral weakness and gain more support from voters in swing states.

According to data from the political prediction website Real Clear Politics, as of the 14th, polls show that Biden is behind former President Trump in seven swing states across the board, and Biden is far behind in North Carolina, Florida, Arizona and Georgia.

North America's largest unions, the United Steelworkers (USW) and the United Auto Workers (UAW), are located in Pennsylvania and Michigan, respectively. The latter is also one of the regions with more investment in new energy batteries and new energy vehicle production capacity.

According to CCTV News, Fu Bingfeng, executive vice president of the China Association of Automobile Manufacturers, said: "The U.S. exaggeration of overcapacity and so-called national security concerns about China's new energy vehicle industry is typical of trade protectionism. The new energy industry is co-created by human beings and can bring common benefits to mankind, but it is very unreasonable to have limited access to the U.S. market. ”

Consideration 2

According to the Clean Investment Monitor, new U.S. investment in the manufacturing and application of clean energy, clean vehicles, building electrification, and carbon management technologies reached $239 billion in 2023, an increase of 38% from 2022. Among them, the investment volume in the fourth quarter of 2023 reached a record $67 billion, an increase of 40% compared to the same period in 2022.

The tariff increase covers the "new three" of foreign trade, but the impact on different products is very different.

According to a research report by the macro team of Soochow Securities Research Institute, China's exports of lithium-ion batteries to the United States account for more than 20%, so lithium-ion batteries are greatly affected by tariffs. The export partners of solar cells and electric passenger vehicles are still concentrated in regions such as the European Union and ASEAN, and the proportion of solar cells and electric passenger vehicles exported to the United States is only about 0.25% and 1.1%, so the impact of the tariff increase is negligible.

Cui Fan analyzed that the anti-dumping and countervailing tariffs on photovoltaic products are added together, for different enterprises, the low is about 33%, and the high is more than 250%; There is also a Section 201 safeguard duty of 14.25% (reduced to 14% in 2025). The increase in Section 301 tariffs from 25% to 50% on this basis means that the current few exports to the United States, that is, $3.347 million for photovoltaic cells and $13.147 million for photovoltaic modules in 2023, may also basically disappear in the future.

"If you look at the above situation alone, it seems that Biden's tariffs this time do have a limited marginal impact, and the role of creating a tough image among voters is greater. However, for electric vehicles and photovoltaic products, this tax increase has basically blocked the way for China to export directly to the United States. He said.

And what about the export of intermediate goods?

Cui Fan said that the 301 tariffs imposed this time are actually a continuation of the 301 tariffs imposed since July 2018, along China's new energy industry chain, from downstream to upstream, step by step, first forcing enterprises to move production links out of China, and then forcing enterprises to invest or transfer technology to the United States.

"First block the export of new energy vehicles to the United States, but still import a certain scale of lithium batteries for electric vehicles, until this tax increase, the time to impose 25% tariffs on natural graphite and permanent magnets further upstream is postponed to 2026." At the same time, he said: "The tariff on non-power batteries mainly used for energy storage has been increased from 7.5% to 25% under the 301 tariff, but the time has been postponed to 2026 to reduce the impact on the cost of new energy power generation such as photovoltaic power generation." While imposing high tariffs on photovoltaic products, it has also released news of exemptions for photovoltaic production equipment. ”

Cui Fan explained to the first financial reporter that the postponement to 2026, these two years, the United States gave itself time to disperse the substitution, if the United States succeeds in these two years, his replacement cost is small, and then the tariffs may be added.

Xing Yuqing, a professor at Japan's National Graduate School for Policy Research, told reporters that the United States knew that it could not (its production capacity alone), so it turned to "friendly shore outsourcing."

He explained that the United States, Europe and Japan will not accept that electric vehicles in the future will all use Chinese batteries. For the United States, Europe and Japan, the automotive industry has always been a pillar industry. The core technology of electric vehicles is currently batteries, and the batteries of the automobile industry in these countries cannot all rely on China, and an agreement has been signed between the United States and Japan to allow electric vehicles made with batteries made from Japanese raw materials to enjoy the subsidies given to electric vehicles by the U.S. government. "This agreement is obviously in line with the industrial policy I just mentioned to encourage the development of electric vehicle battery companies in Japan and the United States." He added.

On March 28, 2023, the United States and Japan reached a trade deal on critical minerals such as lithium, cobalt, and nickel in the manufacture of electric vehicle batteries. Japan's Minister of Economy, Trade and Industry, Yasutoshi Nishimura, said in Tokyo that under the trade deal, electric vehicles that use materials collected or processed in Japan will be eligible for incentives under the U.S. Inflation Reduction Act (IRA). Japanese companies can benefit. He said this is critical to strengthening the battery supply chains in Japan and the U.S. and giving Japanese automakers wider access to the U.S. EV tax credit.

(This article is from Yicai)