Double or Quadruple, Biden Tariffs Won't Really Hurt China

The ongoing trade war between the world’s two biggest economies — China and United States — is set to escalate this week.

US President Joe Biden is expected to announce the imposition of tariffs on Tuesday on a wide range of Chinese goods, from electric vehicles (EVs) to solar equipment, chips, and even medical supplies.

The Financial Times and the Wall Street Journal have reported that tariffs on Chinese EVs are set to quadruple — from 25% to 100%. Meanwhile, levies on other products are likely to double and even triple, according to Fortune magazine.

Also on AF: Revised Bill Gives US Firms Time to Cut Ties With China Biotechs

The planned tariffs might be a good pre-election move for Biden, who is vying for a second presidential term at a time when anti-China sentiment is at its peak — at least among the country’s lawmakers.

But the impact of those levies on Chinese industries is likely to be limited.

Take the case of EVs, for instance. Currently China exports very few electric cars to the United States.

In the first quarter of the year, Geely was the only Chinese automaker to export to the United States with 2,217 cars, data from the China Passenger Car Association shows.

Geely has sold some EVs in the US market under its Polestar brand — which it co-founded with Sweden’s Volvo Cars. While Polestar currently produces most of its vehicles in China, the brand said last month it aims to produce more vehicles in the US starting this year.

That plan, however, comes right from Beijing’s playbook.

In February, China’s Ministry of Commerce directed automakers to establish R&D centres abroad and build partnerships with foreign firms to strengthen supply chains in the face of increasing trade-related sanctions.

Global demand

Other than that Chinese EV-makers have — on the back of the cheap prices for their cars — managed to take hold in several other global markets.

Most Chinese EV-makers are currently eyeing Europe, while the country’s largest electric brand BYD is also making inroads into Mexico.

In Brazil, demand for cheap electric and hybrid vehicles has meant that Chinese carmakers are eating into the market share of brands such as Fiat, Volkswagen and General Motors.

Most Chinese carmakers, including Polestar, are also aggressively pushing into the Asia Pacific auto market. Opportunities and interest are huge in Southeast Asia, where hundreds of thousands of climate-conscious customers are looking to transition to new energy vehicles.

Those opportunities have turned China the world’s biggest car exporter. And with markets across the globe set to expand to — it seems unlikely that Beijing will fret over lost opportunities in the US — where it is facing increasing scrutiny and opposition.

Responding to reports of Biden’s upcoming tariffs, Chinese state-backed newspaper Global Times claimed that Washington’s “trade protectionism will backfire”.

“Experts argue that the US’ protective measures reveal its defensive mindset and its struggles in competing with China’s new energy industries,” the paper said in an article on Sunday.

Also on AF: Chinese EV Maker Zeekr Flies on Blockbuster US Market Debut

‘Tariffs not the answer’

Similar to that argument, American web portal Electrek said that tariffs were not going to help the US win the EV race.

“Instead of just de facto banning the competition from giving Americans access to affordable hot new EVs, the US should instead try making affordable hot new EVs itself,” one Electrek article said.

The report went on to cite a similar trade war between the US and Japan in the late 1970s, in which Washington levied high tariffs on cheaper Japanese steel. “But the tariffs didn’t stop the advancement of the technologically-superior Japanese steel industry.”

There is scope to draw a few parallels between that trade war and the current one between China and the US.

Chinese EV-makers have stolen the march on global competitors in terms of arming their cars with the latest sophisticated technology.

And they’ve done so while keeping their cars cheap.

According to a Washington Post report today, an EV launched by China’s BYD — dubbed Seagull — “has American automakers and politicians trembling.”

One former GM engineer described the car as “an exercise in efficiency.”

According to the report, the car priced around $12,000 is capable of rivalling US EVs that cost three times as much. That would make the car cheaper than its competition even with a 100% levy.

The cheapest Tesla, for instance, is the Model 3 sedan, which sells in the US at a price of about $39,000.

Solar industry unaffected too

Similar arguments can be made for the effects of US tariffs on China’s solar industry. The market is small for China and exports to the United States have been subject to tariffs for more than a decade.

Further duties were also recently imposed on several Chinese solar-panel makers who finished their panels in Southeast Asia.

But over 80% of solar panel manufacturing now takes place in China, and the cost of making a panel in China is 60% cheaper than in the US.

Exports of solar cells to the US also accounted for less than 0.1% of China’s total exports. Shipments of completed solar panels to the US stood at $13.15 million in 2023, only 0.03% of China’s solar panel exports.

Industry observers told Reuters the equipment to produce solar panels involves a complicated supply chain. How the new US tariffs affect sales of that equipment will depend on the details of the US trade levy, they said.

View this post on Instagram

A post shared by Asia Financial (@asiafinancial)

Vishakha Saxena, with Reuters

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]