This week, US President Joe Biden announced substantial tariff increases on Chinese green technology imports, including electric vehicles, chips, and solar cells, intensifying tensions between the US and China.
Despite aiming at $18 billion worth of imports spanning both new and previously targeted sectors, analysts predict that the economic consequences will likely be minimal, provided that Beijing does not respond with significant retaliation.
Economist Ryan Sweet from Oxford Economics stated that Biden’s tariffs on electric vehicles, semiconductors, and batteries are unlikely to significantly affect US inflation or GDP.
Before the recent increase, tariffs were already imposed on Chinese electric vehicles, leading manufacturers to steer clear of the US market. However, the new hike raises the tariff rate from 25 percent to 100 percent.
“Last year, China exported around $400 million worth of battery electric vehicles to the US, whereas the European Union exported nearly $7.5 billion to the US,” noted Sweet.
Sweet added that Oxford’s economic model operates on the assumption that China will not retaliate significantly, considering the current vulnerabilities observed in the world’s second-largest economy.
Tianlei Huang, a research fellow at the Peterson Institute for International Economics, suggests that tariffs could potentially dent the sales and profitability of certain Chinese companies. However, he emphasized during a virtual event that “the direct impact of those tariff hikes is actually quite limited.” He views them more as signaling mechanisms.
According to research conducted by the Center for Strategic and International Studies (CSIS), more restrictive trade policies might make low-carbon technologies less competitive compared to counterparts like combustion engine vehicles. However, Joseph Majkut, director of the energy security and climate change program at CSIS, noted that research scenarios indicate that “rising trade frictions didn’t overcome the still-falling costs of clean energy.”
Additionally, policies like the Inflation Reduction Act in the US, which allocates funding to facilitate the green transition, will continue to promote the development of domestic content, Majkut pointed out.
Meanwhile, Beijing has issued warnings of potentially taking “resolute measures” to safeguard its interests. According to the Trivium China policy analysis group, policymakers might choose to target industries in US swing states to influence Biden’s election prospects or opt for a symbolic form of retaliation.
China’s response, or its decision to refrain from responding, will provide insights into how officials intend to handle what they perceive as “economic suppression” going forward, Trivium pointed out.
“The challenge for the Chinese is, how do they do it in a way that doesn’t freak out foreign businesses?” said Bill Bishop, who publishes the Sinocism newsletter.
With Beijing having previously announced export controls on two rare metals crucial for semiconductor manufacturing, there’s a possibility of action being taken on critical minerals, Bishop noted.
Beijing-based economist Mei Xinyu anticipates a targeted response, and analysts generally do not anticipate tit-for-tat retaliatory measures.
China doesn’t import American EVs, and “Beijing and Shanghai have been very supportive of the one major US EV player, Tesla, in the China market,” noted Paul Triolo, partner for China at Albright Stonebridge Group.
Biden’s move “may accelerate pressure on the EU to adopt a similarly strong posture in its own China tariff review, which is forthcoming,” said CSIS senior fellow Emily Benson.
The European Union initiated an investigation into Chinese electric car subsidies last year, concerned about the potential threat to Europe’s auto industry. This inquiry could result in a tariff increase from the current 10 percent.
However, the leaders of Germany and Sweden have expressed reservations about imposing new European tariffs on Chinese EVs, at least for now.
If multiple major developed economies adopt a tariff approach, China will likely be concerned from both an economic and propaganda standpoint, Bishop emphasized.
US tariffs may also “force Brussels’ hand,” as it could redirect trade to Europe, noted Atlantic Council senior fellow Joseph Webster in an analysis.
“Brussels will have to act quickly, either to implement its own tariffs or to handle an influx of Chinese-made products,” Webster added.
Analysts suggested that China likely wasn’t caught off guard by the latest tariffs, considering the indications from US officials before the announcement.
However, Bishop pointed out that the fundamental issues between Washington and Beijing remain significant, and despite renewed dialogue, their actions haven’t shown signs of change.
“These new measures only serve to erode the already fragile facade of stability,” he remarked.
