US-China trade war: Why Joe Biden has raised the stakes

What has the Biden administration announced?

In a move that is likely to inflame trade tensions between the world's two biggest economies, the Biden administration announced on Tuesday it was imposing more stringent curbs on Chinese imports worth $18 billion (€16.67 billion).

After nearly four years of review, Washington will hike tariffs in targeted sectors, with Chinese electric vehicles (EVs) bearing the brunt of the increase. The total tariff on these vehicles will skyrocket to 102.5% from the current 27.5%.

The new measures also target other technologies including batteries, solar cells, steel, and aluminum. Levies will rise from 7.5% to 25% on lithium batteries, from zero to 25% on critical minerals, from 25% to 50% on solar cells, and from 25% to 50% on semiconductors.

Biden has previously announced steel and aluminum tariffs, which will increase to 25% on some products that have a 7.5% rate or no tariffs now.

The action is aimed at encouraging China to "eliminate its unfair trade practices regarding technology transfer, intellectual property, and innovation," the White House said in a statement.

The EV rate aims to protect the US from a potential flood of Chinese cars that could upend the politically sensitive auto industry. 

Biden's team has meticulously finalized the measures, balancing the need for protectionism with considerations for sustaining economic growth. 

The new tariffs will begin after 90 days from Tuesday — a period that will be closely watched for signs of tit-for-tat retaliation by China. 

How effective will the measures be?

Chinese EVs were virtually locked out of the US market years ago by existing tariffs, while Chinese solar firms mostly export to the US from overseas, avoiding similar curbs.

The Biden administration has been "focused on sectors of longstanding concern," said Greta Peisch from law firm Wiley Rein LLP who served until January as the top trade lawyer for the US Trade Representative's office.

"These are calculated to address particular activities and risks and avoid escalation, to maintain the relationship with China that we have" outside those key goods, she told news agency Bloomberg.

So, despite the somewhat symbolic nature of Biden's measures, particularly given China's limited reliance on US consumers for targeted sectors, the move underscores broader concerns about China's economic influence and unfair trade practices.

Washington aims to protect key US sectors like electric vehicles, batteries, and solar cells from a potential flood of Chinese imports, which could disrupt sensitive industries and undermine US economic interests.

China denies unfair trade practices

In an immediate response to the measures, China's Foreign Ministry said on Tuesday, Beijing "opposes unilateral tariff hikes in violation of WTO rules." 

In April, China's Minister of Commerce Wang Wentao said the speedy rise of the country's EV companies was not because of subsidies, but due to "constant innovations."

US and European allegations of market distortion through state subsidies and overcapacity are without merit, he said, and attributed China's EV edge to a "well-established supply chain system and market competition."

Wang made the remarks on April 7, during a roundtable discussion in Paris with representatives from more than 10 Chinese companies including EV makers Geely and BYD as well as EV-battery manufacturer CATL. The roundtable discussion centered around the European Union's anti-subsidy probe into electric vehicle imports from China, among other topics.

What is the EU doing?

The EU launched an investigation in October to determine if it should impose tariffs on imports of EVs from China "to offset state subsidies, and to level the playing field," following a substantial increase in imports.

EU Commission President Ursula von der Leyen said in September that the "global market is flooded with cheaper electric vehicles" and that prices are "kept artificially low" because of "huge state subsidies."

Utilizing its newest competition tool, the Foreign Subsidies Regulation (FSR), the EU probe into Chinese EVs represents a significant departure from traditional trade defense measures. The investigation focuses on determining whether Chinese producers have received domestic subsidies and whether such subsidies harm EU carmakers.

If deemed injurious, the Commission will impose higher import duties on Chinese EVs — currently between 10% and 20% —  to mitigate the adverse effects on European industries.

Top executives at German carmakers BMW and Volkswagen have warned against imposing EU import duties on Chinese EVs, saying such a move would harm auto producers that import Chinese-made cars, hurt the EU's green transition plans and risk retaliation from Beijing.

"You could very quickly shoot yourself in the foot," BMW CEO Oliver Zipse said earlier this month. "We don't think that our industry needs protection." 

German carmakers, including Mercedes-Benz, rely heavily on revenues from the Chinese market.

Trump's return looms large over US-China trade

The latest US tariff hikes on Chinese imports come against the backdrop of the 2024 presidential race, where Biden is seeking to distinguish his approach from that of his predecessor, Donald Trump.

Trump is contemplating widespread hikes that the current administration views as going too far. During a campaign rally in New Jersey on Saturday (May 11), the Republican hopeful was advocating for even harsher tariffs on Chinese goods.

"He [Biden] says he's going to put a 100% tariff on all Chinese electric vehicles. Isn't that nice? Biden should have done this four years ago," Trump said.

He also warned that Chinese companies will try to build cars in Mexico, in order to avoid tariffs by shipping them to the US under the US-Mexico-Canada Agreement. Trump said he'd put a 200% tariff on Chinese cars produced in Mexico, and pledged in addition a 60% across-the-board tariff hike on all Chinese goods.

Edited by: Ashutosh Pandey