Beyond Trump's Trade War: Biden's Focused Tariff Strategy on Chinese Imports

 

Biden's unprecedented 100% tariffs on Chinese electric vehicles mark a dramatic escalation in the trade war, far surpassing Trump's measures and reshaping the future of American manufacturing and consumer markets.

Six years ago, when Donald Trump first announced tariffs on Chinese goods, the impact was immediate and severe. The American stock market plummeted, businesses warned of potential blowback, and economists were nearly unanimous in their criticism. Fast forward to May 14th, 2024, and the response to President Joe Biden’s new tariff measures has been markedly different. Despite the fact that Biden's tariffs are significantly higher, the protectionist mood in Washington has dampened the panic. This chapter explores the implications of Biden's tariffs, focusing on their dramatic scope, targeted nature, and the environmental costs associated with the move.

Biden's new tariffs are not just a continuation of Trump's trade war with China; they are a significant escalation. Following a policy review, the White House decided to raise tariffs on a variety of Chinese goods. The tariffs on semiconductors and solar cells were increased from 25% to 50%, syringes and needles from 0% to 50%, and lithium-ion batteries from 7.5% to 25%. However, the most striking increase was the quadrupling of the tariff rate on China-made electric vehicles (EVs) from 25% to 100%. According to Lael Brainard of the National Economic Council, these actions aim to create "a level playing field in industries that are vital to our future." Yet, it is the American consumers who will bear the brunt of these costs.

Relative to Trump's China tariffs, Biden's measures are both more targeted and more dramatic. Trump’s tariffs eventually covered over $350 billion worth of imports from China, mostly at a 25% rate. In contrast, Biden's tariffs cover about $18 billion worth of imports but at much more prohibitive rates. The impact is not so much on current trade flows but on future potential. For instance, in Europe, where China-made cars face a more modest tariff of 10%, they have captured nearly a quarter of the EV market. In the United States, there are few Chinese-made EVs on the road, and the new ultra-high tariffs will ensure it stays that way.

The tariffs are aimed at protecting nascent American industries rather than large, thriving ones. Under Biden, the American government is investing hundreds of billions of dollars to build up domestic EV manufacturing, semiconductors, batteries, and more. This has led to a boom in factory construction, especially in America's rust belt, but it will be several years before these production lines are fully operational. The new tariffs are intended to buy time for these emerging industries.

Interestingly, unlike Trump’s initial tariffs, which faced substantial criticism from American businesses, the response to Biden’s tariffs has been muted. Six years ago, many businesses still saw promise in the Chinese market. However, the growing animosity between the two countries and the rising challenge from Chinese companies have dampened these hopes. True believers in free trade with China are now rare in Washington, and the European Commission is conducting an anti-subsidy investigation that could also lead to higher tariffs on Chinese EVs.

Heftier import taxes on Chinese products will inevitably push up prices for American consumers. The immediate effect may be limited, as much trade in tariff-hit categories has already shifted away from China. However, domestic producers might feel less incentive to develop cheaper goods in the long term, knowing they are shielded from foreign competition. This protectionist stance also represents a lost opportunity for the environment. Lower prices for EVs, solar panels, and batteries would have increased their appeal to consumers, which is essential for greening America’s economy.

Biden's move also displays a greater disregard for trade rules compared to Trump’s tariffs. Trump used a “section 301” investigation under American trade law to determine that China had harmed American commerce through intellectual property theft, justifying his tariffs as a remedy. Biden's tariff increases, however, were grounded in a review of those original 301 levies. The concern has shifted from China catching up to America to China now leading in the EV sector, capable of producing a vast number of cars at much lower costs.

There is an argument that China achieved much of its advantage through its own mix of protectionism and subsidies. Traditionally, the way to prevent a flood of Chinese imports would be to apply countervailing duties. Scott Lincicome of the Cato Institute, a libertarian think-tank, noted that "the Europeans are being a little more intellectually honest and doing that." He added that Biden’s new tariffs appear politically expedient, coming just months after Trump pledged to implement tariffs of 60% on all Chinese products.

The new levies may prove more harmful than helpful to America's industrial ambitions. Domestic producers are likely to be more insulated from their fiercest foreign competitors than in past protectionist periods. In the 1980s, when Japanese cars caused concern, Japanese automakers agreed to restrain exports to avoid a trade war. This raised costs for American consumers, but Japanese firms circumvented restrictions by investing in America. Due to the current focus on security threats posed by China, its carmakers are unlikely to follow Japan’s lead. Martin Chorzempa of the Peterson Institute for International Economics remarked, "Without that investment safety valve, how do you ensure that there still is sufficient competition within the American market? That’s the key question." Behind a 100% tariff wall, it will be less urgent for American officials to find an answer.

It is not an exaggeration to say that Biden's tariffs are a bold escalation of the trade war with China, targeting key industries with dramatically higher rates. While aimed at protecting nascent American industries, these tariffs carry significant costs for American consumers and the environment. The move represents a shift in trade policy, reflecting the growing animosity between the U.S. and China and the desire to protect domestic industries at almost any cost. The long-term effects on American industrial competitiveness and environmental goals remain to be seen.