Why Joe Biden has raised the stakes

Deutsche Welle, a German broadcaster, published an article titled “US-China Trade War: Why Joe Biden Has Raised the Stakes.” News.Az reprints the article.

In an effort to protect domestic industries and crack down on unfair trade practices, the US president has quadrupled tariffs on Chinese electric vehicles and increased duties on other green technologies.

What has the Biden administration announced?

In a move likely to fuel trade tensions between the world’s two largest economies, the Biden administration announced on Tuesday it is imposing tighter restrictions on $18 billion (16.67 billion euros) worth of Chinese imports.

After nearly four years of review, Washington will increase tariffs in certain sectors, with Chinese electric vehicles (EVs) bearing the brunt of the increase. The total rate for these vehicles will skyrocket from the current 27.5% to 102.5%.

The new measures also target other technologies, including batteries, solar cells, steel and aluminum. Duties will increase from 7.5% to 25% on lithium batteries, from zero to 25% on critical minerals, from 25% to 50% on solar cells and from 25% to 50% on semiconductors.

Biden previously announced steel and aluminum tariffs, which will rise to 25% on some products now subject to a 7.5% tariff or no tariffs.

The move is intended to encourage China to “eliminate its unfair trade practices in technology transfer, intellectual property and innovation,” the White House said in a statement.

The EV tariff is intended to protect the US from a potential flood of Chinese cars that could upend the politically sensitive auto industry.

Biden’s team has meticulously finalized the measures, balancing the need for protectionism with considerations for supporting economic growth.

The new tariffs will take effect for 90 days from Tuesday – a period that will be closely watched for signs of retaliation by China.

How effective will the measures be?

Chinese electric cars were virtually excluded from the U.S. market years ago by existing tariffs, while Chinese solar companies mainly export to the U.S. from abroad and avoid similar restrictions.

The Biden administration is “focused on sectors of longstanding concern,” said Greta Peisch of law firm Wiley Rein LLP, who until January was the chief trade attorney for the U.S. Trade Representative’s office.

“These are calculated to address specific activities and risks and prevent escalation, to preserve the relationship we have with China” beyond these important goods, she told Bloomberg news agency.

So despite the somewhat symbolic nature of Biden’s actions, especially given China’s limited dependence on U.S. consumers for certain sectors, the move underscores broader concerns about China’s economic influence and unfair trade practices.

Washington aims to protect key U.S. industries such as electric vehicles, batteries and solar cells from a potential flood of Chinese imports, which could disrupt sensitive industries and undermine U.S. economic interests.

China denies unfair trade practices
In an immediate response to the measures, China’s Foreign Ministry said on Tuesday that Beijing “opposes unilateral tariff increases that violate WTO rules.”

In April, Chinese Commerce Minister Wang Wentao said the rapid rise of the country’s EV companies was not due to subsidies but to “continuous innovations.”

U.S. and European accusations of market distortion through state subsidies and overcapacity are unfounded, he said, attributing China’s EV lead to a “well-established supply chain system and market competition.”

Wang made the comments on April 7 during a roundtable discussion in Paris with representatives from more than 10 Chinese companies, including EV makers Geely and BYD and EV battery maker CATL. The roundtable discussion focused, among other things, on the European Union’s anti-subsidy investigation into the import of electric vehicles from China.

What is the EU doing?

The EU launched an investigation in October to determine whether to impose tariffs on electric car imports from China “to offset state subsidies and to level the playing field,” following a substantial increase in imports.

European Commission President Ursula von der Leyen said in September that the “global market is flooded with cheaper electric vehicles” and that prices are “kept artificially low” due to “huge state subsidies.”

Using its latest competition tool, the Foreign Subsidies Regulation (FSR), the EU investigation into Chinese EVs marks a significant departure from traditional trade defense measures. The investigation aims to determine whether Chinese manufacturers have received domestic subsidies and whether such subsidies are harming EU carmakers.

If this is deemed harmful, the Commission will impose higher import duties on Chinese electric vehicles – currently between 10% and 20% – to mitigate the negative impact on European industries.

Top executives of German carmakers BMW and Volkswagen have warned against imposing EU import duties on Chinese electric cars. They say such a move would hurt automakers that import Chinese-made cars, damage the EU’s green transition plans and risk retaliation from Beijing.

“You could very quickly shoot yourself in the foot,” BMW CEO Oliver Zipse said earlier this month. “We don’t think our industry needs protection.”

German car manufacturers, including Mercedes-Benz, are highly dependent on revenues from the Chinese market.

Trump’s return is of great importance for US-China trade

The latest US tariff hikes on Chinese imports come against the backdrop of the 2024 presidential race, as Biden seeks to differentiate his approach from that of his predecessor, Donald Trump.

Trump is considering widespread increases that the current administration says go too far. At a campaign rally in New Jersey on Saturday (May 11), the Republican hopeful called for even tougher tariffs on Chinese goods.

“He (Biden) says he is going to impose a 100% tariff on all Chinese electric vehicles. Isn’t that beautiful? Biden should have done this four years ago,” Trump said.

He also warned that Chinese companies will try to build cars in Mexico to avoid tariffs by shipping them to the US under the US-Mexico-Canada Agreement. Trump said he would impose a 200% tariff on Chinese cars produced in Mexico, while also promising a 60% across-the-board tariff increase on all Chinese goods.