The Biden administration is poised to unveil a sweeping decision on China tariffs as soon as next week, one that’s expected to target China’s new energy industry, including EVs, photovoltaic products, etc., China’s Foreign Ministry reacted promptly, criticizing the U.S. for “continuing to politicize economic and trade issues” and adding that China would take steps to defend its rights and interests. The action by the Biden administration has also sparked heated discussions on Chinese social media.
Today, I would like to relay a quick comment by Professor Cui Fan (崔凡)of the University of International Business and Economics in China, in which I am also a non-resident research fellow. Professor Cui is a senior scholar at UIBE, and his research primarily focuses on international economic law and China's foreign trade policy. He has extensive research and teaching experience in international trade law, WTO legislation, and related international economic regulations. He is also deeply involved in academic research and frequently participates in policy-making consultations and discussions, particularly in developing China's foreign trade and economic cooperation policies. Below is a translation of his comment on his personal WeChat blog. All faults are mine:
On May 14, the Biden administration released the long-delayed Section 301 tariff review report and announced a plan to impose additional tariffs on China’s new energy industry. Various analysts have since released their assessment reports. Here, I'd also like to share my views.
Many say that the Biden administration's decision to impose additional tariffs is mainly based on election considerations. Some think tanks and media in the U.S. also say the same.
Is it about the election? Of course, it is, and it's a significant factor. Besides the new energy industry, this round of tariffs covers products hyped in the media, such as port cranes, which are quite eye-catching. Trump said he wanted to impose a 100% tariff on cars produced in Mexico by Chinese investors and imported by the U.S.; Biden went ahead and slapped a 100% tariff on EVs imported from China. "You plan 100%, I act 100%," making it equally tough, and the voters hear all about the 100%, which is quite satisfying. In 2023, China exported about 12,400 pure EVs to the U.S., worth approximately 2.355 billion RMB. The scale is neither large nor small. With this 100% tariff, I guess this trade of over ten thousand vehicles will probably vanish.
The combined anti-dumping and countervailing duties on photovoltaic products range from about 33% for some companies to over 250% for others; there is also a safeguard tariff of 14.25% (which will drop to 14% in 2025) under Section 201. On top of this, the Section 301 tariffs increased from 25% to 50%, which means the already minimal exports, $3.347 million in photovoltaic cells and $13.147 million in photovoltaic components in 2023, will likely nearly vanish in the future.
If we solely look at the above situation, it seems that the tariffs Biden imposed indeed have a limited marginal impact, playing a bigger role in shaping a tough image among voters. However, for EVs and photovoltaic products, this tariff increase has essentially blocked China's direct export route to the U.S. What about the routes for overseas investments and exports of intermediate products? Didn't Trump say he would also impose a 100% tariff on cars produced in Mexico with Chinese investment? By the way, Mexico has been quite popular in recent years, attracting many investors, but I remain sceptical about Mexico's economic prospects. From 2000 to 2022, the biggest drop in the global economic share among developing countries was seen in Mexico, which fell from 2.20% to 1.45%. With the United States as the world's largest market right next door, why would Mexico regress? Because its economic policies are hard to manoeuvre autonomously, even when opportunities that could benefit it arise, it isn't easy to fully capitalize on them.
Trump planned to block Chinese car investments overseas, and Biden has already started to encircle Chinese photovoltaic investments abroad. On April 24, the U.S. initiated anti-dumping and countervailing duty investigations on photovoltaic imports from Vietnam, Cambodia, Malaysia, and Thailand. Preliminary decisions are expected within this year and final decisions by mid-next year. The dumping margins listed in the investigation applications for these four countries range from 70.35% to 271.45%, suggesting a strong move to block these countries' photovoltaic exports to the U.S. completely.
Although the trade amounts directly involved in EVs and photovoltaic products are limited, the total amount affected by the U.S. tariff increase is $18 billion. This $18 billion comes after nearly six years of pressure from Section 301 tariffs, representing a significant sum. Moreover, lithium batteries account for over two-thirds of this $18 billion.
The 301 tariffs imposed by Biden this time are a continuation of the tariffs that started in July 2018. They progressively squeeze the Chinese new energy industry chain from downstream to upstream, initially forcing companies to move production out of China and then pushing them to invest in the U.S. or transfer technology. The tariffs began by completely blocking the export of new energy vehicles to the U.S.. Still, they allowed imports of lithium batteries used in EVs to a certain extent until this latest increase in tariffs. However, the imposition of a 25% tariff on more upstream products like natural graphite and permanent magnets is deferred until 2026. Tariffs on non-power batteries primarily used for energy storage have been increased from 7.5% to 25%, but this, too, has been postponed until 2026 to minimize the impact on the cost of new energy generation like photovoltaic power. While implementing high tariffs on photovoltaic products, there has also been news of exemptions for photovoltaic production equipment.
Overall, the Biden administration's imposition of tariffs on $18 billion worth of products not only aims to outdo Trump in the electoral race to win over voters but also to suppress China's emerging industries further and compete for shares in the new energy industry, which goes beyond mere electoral posturing. This round of tariff increases has limited marginal effects on trade and a limited overall impact on the competitiveness of China's new energy industry. However, the strategy of progressively squeezing the industry chain from downstream to upstream—effectively banning Chinese new energy vehicles and photovoltaic products from the U.S. market before gradually tightening import restrictions on upstream products—deserves our close attention for its medium to long-term impacts on China's entire new energy industry.