Trump announcing tariffs on Chinese goods seemed as if ‘a bomb had gone off’. With ‘economists lined up to decry the move’, US stock prices having ‘fell sharply’ and warnings by firms of significant ‘blowback’, the worry was evident across the global response. But now, with protectionist sentiment sweeping the US, the world has scarcely blinked at the unveiling of new and far higher tariffs by Biden.
On May 14th, the Biden administration introduced a slew of sweeping tariffs after a policy review. Among other items, tariffs on Chinese solar cells and semiconductors were doubled from 25 to 50%, syringes and needles, previously tariff-free, were hit by a 50% tariff and the existing 25% EV tariff witnessed a shocking quadrupling to a whopping 100%, as reported by The Economist. Lael Brainard of the National Economic Council stated such actions would bring about a ‘level playing field in industries that are vital to [America’s] future’. However, it seems likely that the burden is the American consumer’s to bear.
In comparison to Trump’s more sprawling, broad-based tariffs impacting $350bn of imports for China at a generalised 25% rate, Biden’s tariffs only impact $18bn of imports, though at markedly higher rates. As such, this will significantly decrease the ‘future potential’ of such markets, versus an immediate impact on current trade flows. For example, Europe, which Chas imposed a comparatively lenient 10% tariff on Chinese EVs, has seen the influx of vehicles comprise a quarter of its electric vehicle market. In contrast, far less Chinese-made EVs are on American roads, and it is certain to stay this way given the new hikes.
Undeniably, these protectionist actions and drastic tariffs lie in a bid to boost the local EV industry in America, bar Tesla still in comparative infancy. The US government is splurging hundreds of billions to support a thriving EV manufacturing business, comprising ‘semiconductors, batteries and more’. This has generated a ‘boom in factory construction’, but construction lines will take ‘another few years’ to ‘really kick into gear’. These tariffs merely ‘buy [the industry] time’.
In contrast to the moves made by the Trump administration, domestic firms’ criticism has been relatively ‘muted’. Due to ‘growing animosity’ between the two global superpowers and the ‘rising challenge’ of Chinese firms, ‘promise in the Chinese market’ is rapidly losing its shine. Poignantly, the Economist reiterates ‘true believers in free trade- especially with China- are now a vanishing breed in Washington, not to mention other global capitals’, a stark reminder of how such increased polarisation has caused economic fracturing. Other countries are following suit- the European Commission has launched an anti-subsidy investigation which could slap more tariffs on Chinese EVs.
However, the impact of such decisions will lead to higher costs for consumers. Due to domestic firms being ‘shielded from foreign competition’, despite the ‘immediate impact being limited’, the increase in prices of EVs, solar panels and batteries have prevented a ‘boosting [in] their appeal to consumers’, which is essential for America to facilitate a green transition of its economy.
Compared to Trump’s tariffs, Biden’s arguably depicts increased ‘disregard for trade rules’. Trump launched a ‘section 301’ investigation to determine whether China had negatively impacted American commerce via intellectual property theft, using tariffs as a ‘remedy’ for such actions. Biden’s tariffs were grounded in these original investigations, but the concern has shifted. Rather than ‘begging, borrowing and stealing’ to match America, China has surged ahead of the US and can produce a ‘vast number of cars at a lower cost’. While it could be said that ‘much of [China’s] advantage’ was achieved through an ‘unfair mix of protectionism and subsidies’, what should be ‘traditional[ly]’ implemented would be countervailing duties, which has been enforced by the Europeans.
Such tariffs could also be the product of ‘political expediency’ on the part of the Biden administration, given Trump recently ‘pledged to implement tariffs of 60% on all Chinese products’. Furthermore, they may also appear to be ‘more harmful than helpful’ to American ‘industrial ambitions’ as domestic producers are likely to be ‘more insulated from their fiercest foreign competitors’ than ever before. In the 1980s, Japanese firms circumvented American export restrictions via American investment, allowing for sufficient competition. Due to increased scrutiny, Chinese EV makers cannot follow this lead. The issues of under-competition will gradually reveal themselves, but for now, politicians can gain a breather via the wall of 100% tariffs.
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