The Biden administration recently announced significant tariff increases on China, targeting around $18 billion in strategic industries, particularly electric vehicles (EVs). These tariffs, which have quadrupled to 100% on Chinese-made EVs, are aimed at combating China’s unfair trade practices, addressing overcapacity, and boosting U.S. industries. Additionally, the move is seen as an attempt to boost President Biden’s approval ratings as he heads into the November presidential election.
China has been steadily dominating various industries over the years, with the country now producing a third of the world’s manufactured goods, surpassing major economies like the U.S., Germany, Japan, South Korea, and the U.K. This industrial dominance has allowed China to achieve a significant trade surplus in manufactured goods, amplifying its economic strength on a global scale. In the past few years, China has also become the world’s largest car exporter, surpassing Japan and Germany, with car exports hitting record highs in recent months.
In terms of EVs, China has seen strong domestic sales, with consumers purchasing millions of EVs in recent years. The country is introducing numerous models of EVs, many of them equipped with advanced features and priced competitively compared to Western models. Of particular concern to U.S. companies is the BYD Seagull, a small EV priced at around $12,000, which some are dubbing a “Tesla killer.” However, with the new tariffs imposed on Chinese vehicles, these models are unlikely to make their way onto U.S. roads anytime soon.
President Biden’s tariffs on China are not only intended to address unfair trade practices but also to protect American industries. Through various acts and initiatives, Biden has already provided support to sectors like semiconductors and renewable energy. The increased tariffs on China are seen as an extension of this protection, ensuring that American companies can compete more effectively in the global market. These measures are also likely aimed at rallying voter support ahead of the upcoming election, where President Biden currently trails in polls.
While tariffs can be effective in certain situations, they are not without drawbacks. Tariffs are essentially taxes paid by importers, which can ultimately be passed on to domestic consumers. Additionally, the new tariffs could have unintended consequences on the U.S.’s efforts to transition to renewable energy, particularly if they impact the import of crucial components like lithium-ion batteries. Moreover, a decline in consumer demand for EVs in the U.S. could further complicate the situation, with factors like a shortage of affordable models and concerns about charging infrastructure contributing to the drop in interest.
Despite the challenges and potential consequences of Biden’s tariff increases, China may still face more severe measures if former President Donald Trump is reelected. Trump has threatened to impose even higher tariffs on all imports from China, which could have a significant impact on trade between the two nations. The rise in popularity of EVs and the increasing demand for metals and materials used in their production, such as copper and nickel, further highlight the shifting dynamics in the global economy as governments prioritize renewable energy and sustainability initiatives. It is crucial for investors to stay informed about these policy changes and their implications on the market and the economy.
