The Biden administration recently announced significant tariff increases targeting approximately $18 billion in strategic industries in China, particularly electric vehicles (EVs). These tariffs, which quadruple to 100% on Chinese-made EVs, are aimed at countering unfair trade practices and overcapacity while boosting U.S. industries. Additionally, the move is seen as an effort to bolster President Biden’s approval ratings ahead of the November presidential election. China has been dominating various industries for decades, with a current production output surpassing that of the U.S., Germany, Japan, South Korea, and the U.K. China’s industrial strength has resulted in a trade surplus in manufactured goods equal to a tenth of its entire economy.
China has rapidly become the world’s largest car exporter, surpassing Japan and Germany, with car exports hitting a record high in April. Domestic Chinese EV sales have been strong and are continuing to grow, with consumers purchasing approximately 6.6 million EVs last year. The introduction of as many as 71 models of EVs in China this year, many of which are equipped with advanced features and lower prices than Western models, is expected to further drive demand. One of the models causing concern among U.S. companies is the Seagull, a small EV manufactured by BYD that sells for around $12,000. However, with the newly imposed 100% tariff on Chinese-made vehicles, it is unlikely to see BYD vehicles on U.S. roads anytime soon.
President Biden’s tariffs on China are not only a response to unfair trade practices by China but also aimed at protecting American industries. Through initiatives such as the Chips and Science Act and the Inflation Reduction Act, Biden has taken steps to support American companies in sectors like semiconductors and renewable energy. The tariff increases on China are an extension of this protection to ensure American businesses can compete on a fairer playing field. Biden’s actions are also viewed through the lens of the upcoming U.S. presidential election, with the aim of gaining support among voters concerned about job losses and industrial decline.
While tariffs are not an ideal instrument and should be used sparingly, they can have unintended consequences. Potential setbacks from Biden’s tariffs on China include increased costs for domestic consumers, potential impacts on the nation’s efforts to decarbonize its grid due to China’s role as the largest exporter of lithium-ion batteries to the U.S., as well as the declining consumer demand for EVs in the U.S. Furthermore, Trump has mentioned imposing higher tariffs on all imports from China if reelected, which could eliminate all trade between the two nations. With the rise in popularity of EVs globally and government investments in renewable energy, prices of key metals and materials used in EV production are also increasing.
In conclusion, Biden’s tariff increases on China are intended to protect American industries, address unfair trade practices, and gain political leverage ahead of the November election. While these measures are necessary to level the playing field, they come with challenges and potential unintended consequences that need to be carefully monitored. As investors, staying informed about the broader implications of these policies on the market and the economy is crucial for making informed decisions.
