Economic relations between the United States and China have remained tense for several years. President Joe Biden has decided to strike another blow by announcing a package of sharp tariff increases on a range of imported Chinese goods, including electric vehicles, computer chips, and medical products.
China has transitioned from a poor country to the world’s second-largest economy (occasionally even surpassing the US) over the past 50 years. However, its hegemony in many sectors is unwelcome to other players. The trade war between the US and China has just taken another turn.
Higher Tariffs on Electric Vehicles, Chips, and Steel
On Tuesday, May 14, President Biden announced a package of sharp tariff increases on a range of imported Chinese goods, including electric vehicles, computer chips, and medical products. In doing so, he risks a dispute with Beijing in an election year while trying to gain popularity among those critical of his economic policies, notes Reuters.
Due to extensive subsidies and non-market practices leading to significant production overcapacity, Chinese exports of electric vehicles increased by 70 percent from 2022 to 2023, threatening manufacturing investments elsewhere. Therefore, the tariff rate on electric vehicles will rise from 25 percent to 100 percent by 2024, the White House reported.
China is expected to account for nearly half of all new chip production capacity in the next three to five years. To combat this, tariffs on imported chips from China will be raised to 50 percent starting in 2025. Moreover, the CHIPS and Science Act will see the US investing nearly $53 billion in American production capacity, research, innovation, and workforce development in the semiconductor sector.
American businesses continue to face unfair competition from non-market production overcapacity in China in the steel and aluminum sectors, which are among the most polluting in the world. As Joe Biden emphasized, “Steel is a key sector for the American economy.” Therefore, the tariff rate on certain steel and aluminum products will rise from 0–7.5 percent to 25 percent in 2024.
Batteries for EVs, Graphite, and Solar Panels
Tariffs on electric vehicle batteries will also increase. According to the US administration, China currently controls over 80 percent of some segments of the electric vehicle battery supply chain. As a result, the tariff rate on lithium-ion batteries for electric vehicles will rise from 7.5 percent to 25 percent in 2024, while the tariff on non-EV lithium-ion batteries will increase from 7.5 percent to 25 percent in 2026. The tariff on battery parts will also rise from 7.5 percent to 25 percent in 2024.
“The concentration of production capacity for the extraction and refining of critical minerals in China exposes our supply chains to risk, and our national security and clean energy goals are jeopardized,” the Biden administration states. In response, the tariff on natural graphite and permanent magnets will rise from zero to 25 percent in 2026. The tariff on some other critical minerals will increase from zero to 25 percent in 2024.
Tariffs on solar panels (whether assembled into modules or not) will also increase from 25 percent to 50 percent in 2024. This tariff hike aims to protect against the overcapacity resulting from Chinese policies, which lowers prices and hinders the development of solar power production capacity outside of China. Beijing has employed unfair practices to dominate 80–90% of some parts of the global solar energy supply chain and seeks to maintain this status quo, the White House said in a statement.
