In a move that amplifies the existing trade tensions between the world’s two largest economies, President Joe Biden announced a staggering tariff increase on a wide range of Chinese imports.

The decision targets several key industries that the Biden administration has identified as strategic priorities for the US economy, including electric vehicles, solar cells, steel, aluminum, and medical supplies.

Some of the hikes will be taking effect immediately while others will be progressively implemented within the following next three years as Biden continues to fight against what he views as unfair Chinese trade practices.

Experts believe that retaliation from Beijing could come in swiftly and view the move as a potentially dangerous bet that could end up hurting consumers’ pockets way beyond the benefits that these protections could imply to US domestic manufacturing.

“For too long, the PRC has been playing by a different set of rules,” highlighted Katherine Tai, the United States Trade Representative.

EVs, Solar Cells, Chips, and Medical Supplies Experience Huge Tariff Increase

The centerpiece of the new measures involves quadrupling the tariffs imposed on Chinese electric vehicles to 102.5% effective immediately. This represents an eye-popping increase compared to the current 27.5% level.

Although no major Chinese EV brands are yet being sold in US territory, the move aims to preempt a future wave of cheap EV offerings in the country that the Biden administration views as heavily subsidized by Beijing.

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The President said during an interview with Yahoo Finance: “We’re not going to let China flood our market, making it possible for American auto manufacturers to compete fairly.”

“We’re never going to allow China to unfairly control the market for these cars,” Biden stated bluntly.

Meanwhile, other important goods were impacted by the measure. Here’s a list of the most heavily affected categories:

  • Solar cells: Import duties rising from 25% to 50% this year.
  • Lithium-ion EV batteries: Tariffs climbing from 7.5% to 25% in 2024.
  • Semiconductors: Import taxes doubling to 50% by 2025.
  • Steel and aluminum: Duties of 25% this year, up from 0-7.5% in 2024.
  • Medical supplies like syringes/needles: New 50% tariff in 2023.

Regarding the hikes, Treasury Secretary Janet Yellen commented: “We do not seek to have global domination of manufacturing in these sectors, but we believe because these are strategic industries and for the sake of resilience of our supply chains, that we want to make sure that we have healthy and active firms.”

The aggressive tariff increase aims to rebuild the US’ industrial base by leveling the playing field for American companies as the Biden administration claims that China tilts the balance in its favor through rampant government subsidies and unfair trade practices. However, the decision risks raising the already augmented tensions between the two countries.

“When you make tactics like these, it’s not competition, it’s cheating, and we’ve seen the damage here in America,” President Biden emphasized to justify the measure.

In response to Biden’s decision, Wang Wenbing, a spokesperson for China’s Ministry of Foreign Affairs, said: “We urge the US to stop repairing and digging up the road at the same time, so to speak, and create enabling conditions for China-US climate cooperation and global green transition.”

Oxford Economics Research Says that Impact of Higher Tariffs on Inflation Will be Small

For now, the direct impact on US inflation and consumer prices is expected to be relatively muted. The tariffs apply to roughly $18 billion in imports, which is a relatively small fraction of the $400 billion worth of Chinese goods that enter the American economy every year.

According to estimates from Oxford Economics, the new duties will add just 0.01%to U.S. inflation levels in the near term. However, Beijing’s retaliatory measures could instill additional damage to the country’s economy if they choose to block certain major corporations from doing business with them or increase tariffs on unrelated goods that are exported from the US to the Asian country.

“The tariffs announced on China by the Biden administration foreshadow what is going to be a long, cold winter of economic conflict between the US and China,” commented Joe Brusuelas from RSM US in an interview with CNN.

Meanwhile, Ryan Sweet, the Chief US Economist for Oxford Economics, highlighted that the additional tariffs will just be a mere “rounding error” for inflation levels in the United States and said that they will have “no implications for monetary policy”.

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Finally, Nicole Cervi, an economist from Wells Fargo, emphasized that data suggests that Chinese businesses are relocating their businesses to avoid being affected by these tariff increases.

“There’s definitely some data to suggest that we’ve seen stronger imports from countries outside of China,” Cervi told CNN.

China has already promised to push back against the US’s hostile commercial measures. Beijing has called the tariff hikes “typical political manipulation” and pledged to “take resolute measures” to defend its interests.

Some American businesses operating in China also voiced their discontent as these hostilities could affect their relationship with the ruling party – the Chinese Communist Party (CCP).

The US-China Business Council, which represents 270 American companies with business interests in the Asian country, warned that the tariffs will “ultimately make it harder for American companies to compete in the US and abroad, cost American jobs, and increase prices for US manufacturers and consumers during a time of ongoing inflation.”

Why Now?

The timing for Biden’s decision to hike tariffs on these strategic goods is no coincidence as the country’s 2024 presidential election is approaching. The acting president, who will be seeking reelection, could be using the measure as a show of force to entice hardline voters who believe that the government is being too soft on China. Furthermore, major Chinese EV tariffs could win quite a few votes in the battleground state of Michigan, where the “Big Three” automakers are headquartered.

Biden and former president Donald Trump have had verbal exchanges in regard to the country’s stance on China’s influence on the United States economy.

When a reporter shouted a question about Donald Trump’s critique that “China is eating our lunch”, Biden shot back: “He’s been feeding them a long time.”

Meanwhile, the former president responded to the latest tariff increase by saying: “Where have you been for the last 3½ years? They should have done it a long time ago.” He added: “But they’ve also got to do it on other vehicles, and they have to do it on a lot of other products.”

To these remarks, Biden replied that Trump “just doesn’t get it,” referring to the former President’s plan to impose tariffs on all imports from all countries. Biden believes that this would cause a significant spike in inflation rates that will ultimately hurt American consumers.

Auto and Solar Industry Lobbied Heavily for These Tariffs to Protect Their Turf

The auto industry was among the ones that lobbied the most to get these EV tariff hikes to protect Detroit’s powerful automotive companies and domestic EV makers from being stampeded by cheap state-sponsored Chinese vehicles. US companies simply can’t compete with China’s EV prices (and it’s not even close).

biden impose tariffs on chinese evs to protect domestic manufacturers

Ford, GM, Tesla (TSLA), and others have collectively pledged over $100 billion to build new battery plants and assembly lines for EVs in North America.

Meanwhile, solar panel manufacturers have also voiced concerns that China has been flooding the markets with cheap modules that ultimately undermine the results that these businesses get from their investments in growing their manufacturing capacity.

The head of the Solar Energy Industries Association, Abigail Ross Hopper, deemed the federal government’s rate hikes as “thoughtful” as they excluded categories that impact the machinery that the sector needs to keep growing.

These are exactly the types of targeted impacts that the White House seems to be aiming for rather than implementing broad and disruptive hikes that are immediately passed on to consumers in the form of higher prices.

“China heavily subsidized all these products, pushing Chinese companies to produce far more than the rest of the world can absorb. And then dumping the excess products onto the market at unfairly low prices, driving other manufacturers around the world out of business,” Biden commented during a speech at the White House’s Rose Garden yesterday.

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Nonetheless, skeptics remain unconvinced that these measures alone can cope with China’s industrial ambitions or ultimately create fairer conditions without extensive blowback.

An official from the Biden administration downplayed the risks carried by this tariff increase by stating: “I think what would be inflationary is more, you know, across-the-board, 10% type of tariff that would pose a real risk to consumers, which we’re not doing here. There are a very targeted set of tariffs on specific sectors.”

Meanwhile, George Calhoun from the Stevens Institute of Technology believes that, conceptually, higher tariffs should have a “potential inflationary impact.” However, he emphasizes that the way in which they are approaching the situation, which he deems as “very surgical,” could prove to be the right course of action to prevent inflation from spiraling out of control while scoring “some political points” at the same time.