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Tariffs called 'unfortunate shift' in US policy

By ZHAO HUANXIN in Washington | | Updated: 2024-05-15 10:33
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The US government's latest move to slap heavy tariffs on Chinese imports, including electric vehicles and solar cells, shows protectionism and industrial policy is the new consensus approach to economic challenges, which is an "unfortunate shift" in US policy, a senior economist said on Tuesday.

The United States is increasing tariffs on $18 billion worth of Chinese imports, targeting electric vehicles (EVs), advanced batteries, steel and critical minerals, the White House said on Tuesday.

The fresh levies come on top of the already massive tariffs imposed on more than $300 billion worth of Chinese goods, which were introduced during the Trump administration, according to the result of a four-year review of the China Section 301 tariffs, released by the Office of the United States Trade Representative (USTR) on Tuesday.

The review was undertaken under Section 301 of the Trade Act of 1974, which Trump invoked to first launch the China tariffs in 2018.

The centerpiece of the new tariffs is a quadrupling of levies on Chinese EVs to 100 percent starting this year, an attempt analysts said would likely result in thwarting the Biden administration's own efforts to fight climate change by speeding up EV adoption.

Erica York, a senior economist and research director with the Tax Foundation's Center for Federal Tax Policy, said that at present, consumers are not likely to see an immediate increase in costs because Chinese EVs are already locked out of the US market.

"Longer term though, it means American consumers will lack choices, including competitively priced and innovative Chinese EVs and face higher prices for green tech and green energy at home," York told China Daily on Tuesday.

York's organization has estimated that the current tariffs and retaliation will reduce long-run US output by about 0.25 percent, costing thousands of jobs and reducing incomes.

Maintaining the current tariffs, which have been costly to American consumers and the manufacturing sector, and doubling or quadrupling down on the approach, will further increase costs, insulate US businesses from competitive pressures that lead to long-run improvements, and put US manufacturers at a competitive disadvantage abroad, according to York.

"Protectionism and industrial policy are not a recipe for success; instead, policymakers should pursue reforms that encourage investment, innovation and competition," she added.

The tariffs that take effect this year also cover solar cells, syringes, needles, steel and aluminum products, according to a statement from the USTR.

The tariff rate on semiconductors will surge from 25 percent to 50 percent by next year, while levies on Chinese EV batteries and battery parts will more than triple to 25 percent by 2026.

Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics in Washington, noted that as some tariffs are to be phased in over a couple of years, they won't have an "immediate" effect.

"But for sure they will delay the rate of EV adoption and hurt the clean-air agenda," Hufbauer said of Biden's climate agenda, which includes ramping up the adoption of EVs to cut US greenhouse gas emissions.

The expert said that the tariffs are a "definite negative" for US-China relations.

China's Ministry of Commerce said on Tuesday that the US tariff hike goes against the consensus reached by the leaders of the two countries and the promises of President Joe Biden, and will "seriously affect the atmosphere of bilateral cooperation".

"I expect China to retaliate in a measured way against iconic US exports," Hufbauer said. "I'm sure Beijing is studying the menu."

The Commerce Ministry said China will take "resolute" measures to safeguard its own rights and interests, according to a statement.

US media reports on Tuesday pointed to the fact that the tariffs in an election year come in the middle of a heated campaign between Biden and his Republican predecessor, Donald Trump, where they both resort to China-bashing tactics.

A new set of polls show that Trump leads Biden in five of six crucial election battleground states, Michigan, Arizona, Nevada, Georgia and Pennsylvania.

"The timing is specifically aimed at voters in Pennsylvania, Ohio and Michigan — auto and steel states," Hufbauer said.

"Since Trump promises equal or higher tariffs, I doubt the announcement will shift many votes toward Biden, but it may avoid further losses to voters who welcome protection," he added.

Douglas H. Paal, distinguished fellow of the Asia Program at the Carnegie Endowment for International Peace, said Tuesday's announcement of fresh tariffs constituted one form of the US response to the "serious trade issues" with China.

"When leaders are weak in election years, they resort to popular measures that may be less effective in reality than in rhetoric. That is where we are," Paal told China Daily.

Trade bodies 'disappointed'

Hours after the release of the results of the review of the China Section 301 tariffs, US trade organizations said they were highly disappointed by the outcome.

"The decision to extend Section 301 tariffs on a wide range of apparel, footwear, accessories, and textiles — while not unexpected — is a real blow to American consumers and manufacturers alike," said Steve Lamar, president and chief executive officer of the American Apparel & Footwear Association.

"The Biden Administration has had two years to get it right. Unfortunately, they doubled down on a flawed tariff policy, despite the Biden Administration's own acknowledgment that this policy has failed in its goals, and overwhelming public input that supported a different outcome," he said in a statement.

The National Retail Federation also said it was "extremely disappointed" that the USTR and the Biden administration had chosen "to double down on a failed and inflationary strategy by sustaining and expanding the Section 301 China tariffs".

"Maintaining these tariffs on consumer goods will increase costs that consumers pay on everyday products imported from China,"said David French, executive vice-president of government relations.

The US-China Business Council, a nongovernmental organization representing many of the world's largest brands doing business in China, also noted that maintenance of the prior tariffs — with no reductions — and imposition of additional tariffs ultimately make it harder for American companies to compete in the US and abroad, cost American jobs, and increase prices for US manufacturers and consumers during a time of ongoing inflation.

"Additionally, levying new tariffs invites retaliation from China, which combined could further disadvantage US companies selling goods and services in China's market compared to their foreign competitors," USCBC President Craig Allen said.

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