On May 14th 2024, the Biden administration announced new China tariffs that could value around US$18 billion in tax revenues. Products in the firing line are broadly related to American national security and include semiconductors, EVs, solar cells, batteries, and medical devices, and we’ll look in more detail at each tariff.

While it is clear that the USA either wants to boost domestic production of these products or purchase from friendlier trading partners, how will this affect the already frosty relationship between them and China, and also, what if you’re an American importer who buys products like this from China right now? We have some tips for you.

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When did China tariffs start being used?

The situation today probably originated from the 1990s when the Clinton administration worked to enable China to open up economically and integrate into the global economy becoming a beneficial trading partner. The trade imbalance was allowed to develop, with the USA buying for more from China than they exported there, and continues until now. But in 2018, Trump enacted the first set of Section 301 tariffs on certain products, such as steel and aluminum, stating that the trade imbalance was unacceptable as it harmed American business. The logic was that even if China retaliated with tariffs on American imports, since the USA was buying so much their tariffs would have a greater effect leading to the desired outcome of reducing Chinese imports in favor of domestic goods or those from friendlier trading partners. The tariffs also affected South Korean and European imports, too, but in China’s case it was a political play as ‘punishing China’ was a popular notion with voters of either party. (03:26)

Why add more tariffs now?

Inflation has calmed since late ’22 or 2023, so putting additional tariffs in place has only just become feasible otherwise a move like this would be blamed for making inflation even worse. Covid also awakened the USA (and Europe) to the fact that they relied on China too much for products and materials essential for national security, such as medical supplies (masks, etc), solar cells, batteries, etc, and that these would be better produced domestically or in friendly countries. This in part led to the IRA (Inflation Reduction Act) where the government distributed large subsidies to encourage the green economy, semiconductors, and other industries where they felt the edge had been lost to China. The tariffs are there to help support the initiatives, by making Chinese competitor products in chosen sectors, such as the green economy, more expensive, levelling the playing field for the American businesses. (09:46)

What does China have to say in response to this?

China accuses the USA of breaking WTO rules and protectionism and will hit back with tariffs. It’s no secret that similar to the States, China has also been making efforts to remove American technology from its infrastructure, so it seems that the feeling is mutual.

Trump’s trade envoy Robert Lighthizer seems to endorse moving away from the concept of ‘free trade’ and the WTO as they are far removed from the USA in Geneva and don’t stand up for their interests. In addition, he says the dollar is a reserve currency which does not depreciate if there is a trade imbalance to give it more price-competitiveness, leaving the USA at a disadvantage to trading partners like China who flood the market with an excess of cheap products as market forces don’t work well in that case for them. Lightizer had this to say about China’s trade surplus in an interview:

“Every country should be exporting in order to import. If you’re running chronic surpluses for decades, then you are by definition a protectionist. You’re engaging in industrial policy to help yourself, you’re transferring resources from your consumers to your producers, you’re trying to … acquire other countries’ assets.” (16:20)

 

Which products and materials have been given these tariffs?

The Section 301 tariffs just announced are as follows (courtesy of USTR.GOV):

In general, 25% tariff increases may not put off American buyers completely, but they signal that they should perhaps consider investing in local suppliers or those from other countries.

However, increases of 50% or even 100% in the case of Chinese EVs are a pretty stark warning that purchasing these products and materials is not welcome in the USA, and it’s no coincidence that these items are in industries where the USA wants to reduce its reliance on China for matters of national security such as solar power generation, port industry, medical devices, batteries, and more. (20:45)

The USA’s target areas for improvement.

The tariffs tell us that there are key areas where the USA wants to curb China’s dominance or hold back its progress while making its own and reducing its dependence on China for some goods. In some areas, the government is incentivising domestic manufacturing, such as solar energy and semiconductors, but is also keen on purchasing more from friendly trading partners such as Mexico (although Trump intends to deal strongly with Chinese companies manufacturing in Mexico and selling into the USA via this ‘back door’ if he regains power). (29:51)

Will Chinese companies find other customers instead?

Beijing probably can’t demand that no one sells to the USA no matter what happens, and some suppliers sell a lot to American customers so they won’t just stop even if there are tariffs. However, there will be even more investment from the Chinese into countries like Vietnam and Mexico. It may be that Chinese suppliers can dominate in other developing countries worldwide to make up for a loss of trade to the USA and West. (33:06)

If you’re an American buyer likely to be affected by these tariffs, what can you do?

If you are buying affected products you can try and negotiate with your Chinese supplier for you to both shoulder some of the extra financial burden. If you have a good relationship and place decent-sized orders with them, this is possible. Some importers may plan to source from elsewhere, although actions will depend on each business.

For buyers of items without tariffs, no change really. The only future risk occurs if they are products or materials that are somewhat related to batteries, semiconductors, EVs, etc. There is a likelihood that future actions will be taken on industries like this by Washington DC. (36:36)

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• ”Enterprise China” – China’s Strategy for Economic Success (Author Interview with Drs. Allen J. Morrison & J. Stewart Black)
• What Biden’s tariffs on Chinese imports may mean for American jobs, the economy and inflation