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Trade war between the US and China: reports say the Biden administration will hit Beijing with tariffs on electric vehicles, i.e. strategic sectors

According to American media reports, the administration of US President Joe Biden will announce next week plans to sharply increase import tariffs on Chinese electric vehicles and a number of other goods related to the new energy economy.

Following a review of Section 301 rates initially introduced by former President Donald Trump’s administration in 2018, the Office of the United States Trade Representative (USTR) is expected to raise the tariff rate on electric vehicles imported from China to approximately 100% from the rate as reported by ” The Wall Street Journal”, 27.5%.

Citing people familiar with the situation, the Journal reported that critical minerals from China would also be targeted, but did not specify a new rate.

People pass by a stand of Zeekr, the premium electric vehicle brand of Chinese carmaker Geely, in a shopping mall in Beijing. Photo: Reuters

Bloomberg reported that in addition to tariffs on electric vehicles, the USTR will also raise tariffs on batteries and solar cells, while other existing Trump-era Chinese levies on goods worth about $300 billion should remain unchanged. He added that the announcement will probably be made on May 16.

Existing tariffs on Chinese electric vehicles include a 2.5 percent levy on all cars imported into the US.

While the Biden administration has not yet confirmed the plan, some of the president’s top financial officials have signaled concerns about excess capacity in China and the potential for it to flood U.S. markets.

During her visit to China last month, U.S. Treasury Secretary Janet Yellen urged her counterparts to address industrial overcapacity in the country, particularly for new energy vehicles and solar modules.

In testimony before the House Appropriations Committee on Wednesday, Commerce Secretary Gina Raimondo expressed concern that China could increase its share of global industrial production to 60 percent from the current “around 30 percent” in response to slowing economic growth. She signaled that an answer was on the horizon.

BYD electric cars waiting to be loaded onto a ship at the international container terminal in Suzhou Port, Jiangsu Province, China. Photo: AFP

“It’s no secret that (the Chinese government’s) strategy is to increase production,” she told lawmakers. “I’m very concerned about the possibility that… they will abandon their low-cost products, whether it be electric vehicles, legacy semiconductor chips, critical minerals – the list goes on.

“We are working closely with the (U.S. Trade Representative Office) to determine where we are most vulnerable and what actions we can take,” Raimondo added.

Once announced, the tariff hike will follow similar efforts Biden has made amid a growing chorus of concerns from policymakers, lawmakers and trade associations across the United States about what harm Chinese imports could potentially cause.
Last month Biden called on U.S. Trade Representative Katherine Tai to triple the existing tariff rate on Chinese products steel and aluminumas Tai’s office announced the launch of a separate Section 301 investigation into China’s maritime, logistics and shipbuilding sectors.

While a significant tariff increase on Chinese electric vehicles seems significant, the move is not a surprise given the Biden administration’s recent announcements, and won’t change much since imports of products from China into the U.S. are largely non-existent, said Mary Lovely, senior employee at the Peterson Institute for International Economics.

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US Treasury chief Janet Yellen is leaving China after “difficult talks” and complaining about overcapacity

US Treasury chief Janet Yellen is leaving China after “difficult talks” and complaining about overcapacity

Lovely noted that electric vehicle batteries and imports of key minerals from China are already subject to non-tariff restrictions.

Under the Inflation Reduction Act signed by Biden, to receive the maximum tax credit of $7,500 for new and $4,000 for used electric vehicles, at least 40% of the minerals used in electric vehicle batteries – including cobalt, lithium, graphite and nickel – must be mined and processed in North America or at least not from a “foreign entity of interest.”

This will “balkanize” supply chains and push Chinese manufacturers to set up factories in countries that are not subject to tariffs and other restrictions, Lovely said. “It’s like giving more protection to conservation, and that’s why I think some of it will be called a bit performative.

“They will jump over the tariff wall by investing in foreign markets,” she said. “It is already clear that the Chinese want to build a factory in Hungary. This way they will get around these very high tariffs, just like the Japanese did in the 1980s.”

There are Chinese lithium battery manufacturers We’re already setting the scope Hungary as a place for the production of electric vehicles and batteries for them – a topic of discussion between President Xi Jinping and Hungarian Prime Minister Viktor Orban during Xi’s presidency visit to Budapest Thursday.

An article published by the think tank of the Center for European Policy Analysis shows that Chinese battery maker Contemporary Amperex Technology is building a 7.3 billion euro ($7.9 billion) factory in Hungary and plans to start production next year.

Chery’s carMeanwhile, planning to build according to a company statement made last month, it has launched its first European factory in the Zona Franca industrial zone of Barcelona in northeastern Spain with Ebro-EV Motors.

“The U.S. industry will certainly welcome tariffs on Chinese electric vehicles that will essentially give them a fully protected market,” Lovely said. “The problem is who will produce affordable electric vehicles?”