President Joe Biden has now joined former President Donald Trump as a “tariff man,” leaving all of Trump’s China tariffs in place and imposing his own set of levies.
Biden’s announcement this week aims to keep certain Chinese imports out of the US economy and protect the domestic production of semiconductors, green energy technology, and other favored industries.
And whether Biden or Trump wins the election in November, more protectionism is coming to US trade policy.
Like most political rivals, Biden and Trump have different rationales and strategies for boxing out China. But both men have important reasons to continue what they started.
The most important target of Biden’s new tariffs are electric vehicles made in China. The new rules raise the import tariff on Chinese EVs to 100% from 25%, meaning a Chinese-made EV with a base price of $12,000 would now cost $24,000, up from $15,000 previously.
There are almost no Chinese-made EVs on sale in the United States right now. The Biden plan is to keep it that way.
But there’s a giant loophole, which everybody in the US auto industry is fully aware of and quite worried about.
The new Biden tariffs, like all of Trump’s China tariffs, only apply to products shipped to the United States from China. They don’t apply to products made by Chinese companies in any other country, or products made in China and shipped to the United States via third-party nations to avoid China-specific tariffs.
Chinese automakers have already established operations in Mexico and announced plans to enter the US market. Chinese automakers could set up shop in Canada too.
Both nations belong to a free trade agreement with the United States, which allows them to import products to the United States with no tariffs or very low ones.
And neither Biden nor Trump has outlined a clear solution to this problem — which somebody is going to have to do.
“The [Biden] tariff announcement is only a first step,” research firm Capital Alpha Partners explained in a May 14 analysis. “It is one thing to tariff Chinese-made EVs that originate in China. It’s another thing to tariff EVs made by Chinese manufacturers in third countries such as Mexico, Canada, the EU nations, and other third countries.”
Trump said in March that if elected to a second term, he’d put a 100% tariff on Chinese cars made in Mexico. Biden’s tariff plan prompted Trump to up the ante to a 200% tariff.
But it’s far from clear whether the president can single out products for tariffs if they come from a free-trade partner, especially if those products comply with domestic content rules such as those in the US-Mexico-Canada trade pact.
At a White House briefing on May 14, a reporter asked US Trade Representative Katherine Tai what the Biden administration planned to do about Chinese vehicles made in Mexico. “I would just ask you to stay tuned,” Tai said.
Capital Alpha thinks Congress will have to pass new laws giving the executive branch added authority to block or heavily tax imports within a trade pact if they trace back to an economic competitor such as China.
“We don’t think Congress is ready to answer the question at this time,” the research firm said in its May 14 report. “But we expect to see hearings and possibly some draft bills this spring and summer. The real legislating, though, will have to happen next year, after the presidential election.”
It’s also entirely possible crafty Chinese automakers could build cars in China and Mexico while abiding by all the trade pact rules and still sell them in the US market for less than competitors.
Given that China has identified electric vehicles and the supply chain for green energy technology as critical industries crucial to the nation’s economic development, these industries get a special assist from the Chinese government. Government subsidies at home could help make up the difference if they can’t turn a legitimate profit.
The US president could take executive action and hope that litigation ties up the matter for years. But that would probably not deter the Chinese. There’s now convincing evidence that some Chinese exporters evaded the Trump tariffs by shipping goods to the United States through other countries, such as Vietnam.
And not only is China known for playing the long game on economic policy, but it could win a court challenge if its products check all the boxes under the three-nation trade deal.
Even so, expect both Biden and Trump to continue railing on Chinese efforts to grab US market share and displace American producers. Especially given how this issue resonates in electoral swing states dependent on manufacturing like Pennsylvania, Michigan, and Wisconsin, which will go a long way toward determining who wins in November.
So, there are political points to win by convincing voters you’re tougher on China than the other guy.
But either candidate will face a continued challenge protecting American manufacturers and their workers.
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Yahoo!Finance
