Just over six years ago, when Donald Trump first announced tariffs on Chinese goods, it was as if a bomb had gone off. American stocks fell sharply at the prospect of a trade war, businesses warned of blowback, and economists lined up to decry the move. Such is the protectionist mood in Washington now that Joe Biden’s announcement of new measures has been met with rather less panic—even though it concerns significantly higher tariffs.
On 14 May, following a policy review, the White House decided to raise tariffs on, among other things, Chinese semiconductors and solar cells from 25% to 50%, syringes and needles from 0% to 50% and lithium-ion batteries from 7.5% to 25%. It hit electric vehicles with the biggest increase of all, quadrupling the tariff rate on China-made electric vehicles (EVs) from 25% to 100%. Lael Brainard of the National Economic Council said the actions would create “a level playing field in industries that are vital to our future”. Yet it is American consumers who will pay the price.
Relative to Mr Trump’s China tariffs, the new levies are both more targeted and more dramatic. Mr Trump’s tariffs in time sprawled to cover over $350bn-worth of imports from China, mostly at a 25% rate. Mr Biden’s tariffs cover about $18bn-worth of imports, though at far more prohibitive rates. The impact is thus not on current trade flows but on future potential.
For example, in Europe, where China-made cars (including Western brands) face a more modest tariff of 10%, they have taken nearly a quarter of the EV market. In America, by contrast, there are few Chinese-made EVs on the road today. Owing to the new ultra-high tariffs, it will surely stay that way.
Within America, the tariffs are aimed at protecting nascent industries rather than large, thriving ones. Under Mr Biden, the American government is spending hundreds of billions of dollars to build up domestic EV manufacturing, semiconductors, batteries and more. This has prompted a boom in factory construction, including in America’s Rust Belt, but it will be another few years before production lines really kick into gear. The aim is for the new tariffs to buy them time.
Unlike with Mr Trump’s initial salvo of tariffs, criticism from American businesses has been muted. Six years ago, many still saw promise in the Chinese market. Such hopes have been beaten down by the fraying of relations between the two countries and the rising challenge from Chinese companies. True believers in free trade—especially with China—are now a vanishing breed in Washington, not to mention other global capitals. The European Commission is in the midst of an anti-subsidy investigation that could also lead to higher tariffs on Chinese EVs.
Higher tariffs on Chinese products will push up prices for American consumers. The immediate effect will be limited because so much trade in tariff-hit categories has already shifted away from China. But domestic producers may also feel less of an incentive to develop cheap goods in the long term, knowing that they are shielded from foreign competition. The tariffs can also be seen as a lost opportunity for the environment. Lower prices for EVs, solar panels, and batteries would have boosted their appeal to consumers, which is essential if America were to green its economy.
Mr Biden’s move also arguably displays more disregard for trade rules than Mr Trump’s tariffs. Mr Trump used a “Section 301” investigation under American trade law to determine that China had hurt American commerce, notably through theft of intellectual property and then hit it with tariffs as a remedy. Mr Biden’s tariff rises were grounded in a review of those original 301 levies.
