The Washington Post-Biden to hit Chinese EVs with tariffs topping 100 percent as election looms

2024-05-13T15:06:32.666Z

President Biden will announce Tuesday that he is quadrupling tariffs on Chinese electric vehicles to 100 percent and imposing new levies on computer chips, solar cells and lithium-ion batteries in a bid to prevent a flood of low-cost Chinese products from swamping his hopes of reviving domestic manufacturing.

Capping a three-year review, the president will slap tariffs on a modest $18 billion in Chinese products “to protect American workers and businesses,” especially in the auto industry, the White House said.

Administration officials said the actions were a needed response to years of “unfair trade practices” by China, including forced technology transfer, intellectual property violations and cyberhacking of American businesses, that have given it a dominant role in global manufacturing.

“China is using the same playbook it has before to power its own growth at the expense of others by continuing to invest despite excess Chinese capacity and [by] flooding global markets with exports that are underpriced due to unfair practices,” said Lael Brainard, director of the White House National Economic Council. “China’s simply too big to play by its own rules.”

Almost a quarter-century after China formally entered the global trading system, U.S. patience with its economic system is exhausted. Generous state support, in the form of easy credit, free or low-cost land, and workers with few rights, has enabled China to rise in one industry after another.

Now the Biden administration wants to draw the line — and be seen drawing the line — at an industry that was identified with the United States for most of the 20th century.

Though the Chinese EV threat for now is embryonic, administration officials and independent analysts say the competitive challenge will only grow.

Last year, Chinese car companies exported just $400 million worth of electric vehicles to the United States; sales by European manufacturers were almost 20 times higher, according to Oxford Economics.

“This is all about stopping the flood before it begins,” said Michael Dunne, an auto industry consultant who spent several years in China and is now based in San Diego.

Along with erecting new defenses around the domestic EV market, Biden Tuesday also doubled the existing tariff on basic or “legacy” semiconductors to 50 percent; more than tripled the tariff on some steel and aluminum products to 25 percent; and imposed a new 25 percent tariff on the giant ship-to-shore cranes used to unload container ships at U.S. ports.

Some of the new levies, such as the semiconductor fee, will take effect next year while others, like those on surgical gloves will not hit until 2026.

While the administration insisted that politics played no role in the decision, White House officials also repeatedly distinguished between Biden’s actions Tuesday and the policies followed by his predecessor and likely opponent in November.

Former president Donald Trump, beginning in 2018, imposed tariffs on roughly two-thirds of Chinese imports. He is campaigning now on a pledge to levy a new 60 percent tariff on all Chinese products, a move that many economists say would disrupt global supply chains and increase inflation.

Biden officials, in contrast, describe the latest tariffs as “carefully targeted” to protect only the strategic sectors that the president seeks to cultivate: advanced computer chips, low-carbon energy and key industrial materials such as steel and aluminum. Nearly $1.5 trillion of public and private funds have been channeled into these industries in the past few years.

The White House also blasted the trade deal with China that Trump signed in 2020, saying it failed to increase American exports or manufacturing jobs. U.S. factory employment has grown by 773,000 jobs since Biden took office.

Six years after Trump first took aim at the fundamental elements of China’s economic system, a second president confronts the same problems and is again erecting trade barriers to address them.

“It’s the correct response to a big problem that China is creating in its overproduction in key manufacturing sectors,” said Wendy Cutler, vice president of the Asia Society Policy Institute, and a former U.S. trade negotiator. “China’s trying to export its overcapacity to the rest of the world.”

The administration said the latest U.S. tariffs are designed “to encourage China to eliminate its unfair trade practices.” But some analysts said there is little chance of that happening.

“If you don’t push back on Chinese subsidies, you lose your industry,” said Jeff Moon, a former U.S. trade negotiator. “This is not solvable. This is the nature of their system.”

Indeed, heavy state subsidies allowed China in recent years to dominate global markets in shipbuilding, steel and solar panels. Now, their increasingly capable automakers threaten to vanquish the U.S. auto industry, which is struggling to manage a transition from gas-powered to electric vehicles.

With a debt-ridden property market weighing on domestic demand, Chinese companies hope to survive by exporting their excess production to customers in the United States, Europe and developing markets.

China’s auto industry can produce 40 million gas and electric vehicles each year. Domestic sales and exports total roughly 30 million. That leaves excess capacity of about 10 million vehicles, roughly equal to the number produced in the United States last year, according to Dunne.

Dunne praised the administration action but said it was insufficient to guarantee that American car companies could survive.

“Tariffs solve one half of the equation. The other half is how to ignite a mind-set of innovation, intensity and ambition among domestic automakers,” he said.

More than a decade after Wen Jiabao, then Chinese prime minister, warned that China’s growth was “unbalanced, uncoordinated and unsustainable,” its leaders continue to prioritize manufacturing over greater consumer buying power.

China spends more on industrial policies to shape its economy than it does on defense, said a 2022 report by the Center for Strategic and International Studies. In dollar terms, China spends more than twice as much as the United States, according to the report, which was funded by the State Department.

Continued investment in manufacturing capacity has left many Chinese industries able to produce far more than is needed at home. Biden administration officials complain that China now controls “70, 80, and even 90 percent of global production for the critical inputs” the U.S. economy needs.

Earlier this year, Tesla CEO Elon Musk said Chinese companies would “demolish” their global rivals unless the United States and Europe erected new trade barriers.

Any potential Chinese retaliation is likely to be limited, according to Greta Peisch, who stepped down earlier this year as general counsel in the office of the U.S. Trade Representative.

“This is pretty measured. We see China generally matching U.S. actions in scope and scale. So I’d expect their response to also be measured,” said Peisch, a partner at Wiley Rein.

The tariffs reflect the challenges facing the Biden administration as it tries to balance global climate goals with geopolitical concerns about China’s dominance of EV supply chains.

Biden wants half of new cars to be zero-emission by 2030. But EV sales growth has slowed in recent months, leaving the country far off-track.

The new tariffs will have little impact on domestic EV sales at the moment, analysts said. The only Chinese electric vehicle for sale in the United States now is made by Polestar, which is owned by China’s Zhejiang Geely Holding.

But Volvo, which is owned by the same company, has been planning to introduce new electric models as soon as this summer. And U.S. tariffs could discourage Chinese automakers such as BYD and Nio from selling to American consumers, leaving fewer EV choices at dealerships nationwide in the future, said Corey Cantor, a senior associate for electric vehicles at BloombergNEF.

“There’s kind of a paradox,” Cantor said. “There’s this element of getting more consumers into EVs. And then there’s this element of keeping out these attractive Chinese EVs or the U.S. auto market will be decimated.”

News of the tariffs first surfaced last week while John D. Podesta, senior adviser to the president for international climate policy, was meeting with his Chinese counterpart in Washington.

Podesta told reporters Friday that trade tensions between the United States and China — the world’s two biggest greenhouse gas emitters — would not undermine climate talks between the two superpowers.

“Even as our overall relationship between our two countries has increasingly been characterized by fierce competition, we have an obligation to our citizens and the people of the world to communicate, cooperate and collaborate where we can to tackle the climate crisis,” Podesta said.