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US’ moronic tariff hikes on Chinese imports only hurt Americans more
Update
The Sino-American trade war benefits China’s competitors
Arvind Subramanian-30 May 2024, 07:15 AM
The higher the tariffs on imports from China, the greater the competitive advantage third-country suppliers will gain over Chinese firms, particularly in large markets like the US and Europe.
US president Joe Biden and his predecessor Donald Trump, the presumptive Republican nominee in November’s presidential election, are competing to portray themselves as tough on trade and China.
Biden has already imposed a 100% tariff on Chinese-made electric vehicles, and Trump has vowed to impose a 200% tariff on Chinese cars manufactured in Mexico, along with a range of other protectionist measures affecting steel, solar panels, semiconductors, and batteries. The European Union is likely to follow suit, albeit more cautiously.
Under President Xi Jinping, China is widely expected to respond with tit-for-tat tariffs rather than turn the other cheek, thus increasing the likelihood of a trade war that could significantly impede the green-energy transition and potentially lead to a broader geopolitical conflict.
What is often missing from the debate about the escalating rivalry between the US and China is the perspective of other countries, especially larger developing economies. After all, these tariffs are not just protectionist but also discriminatory.
If there is any truth to the joke that China is the only country in history with a comparative advantage in every industry, then targeting the world’s most efficient exporter and supplier with protectionist measures could create lucrative opportunities for its competitors.
In analysing these developments, it is instructive to consider the free-trade agreements (FTAs) of the post-war period. These FTAs were a mirror image of today’s discriminatory measures: while they reduced tariffs on imports from partner countries, effectively diverting trade away from third-country suppliers, today’s tariffs are being imposed on imports from perceived adversaries like China, redirecting economic activity towards third-country suppliers considered allies.
The Biden administration’s China trade policy, which US National Security adviser Jake Sullivan likened to “a small yard and a high fence” in 2023, could further weaken Chinese manufacturing.
In fact, the higher the tariffs, the greater the competitive advantage third-country suppliers will gain over Chinese firms, particularly in large markets like the US and Europe.
To be sure, these gains will depend on the extent of US protectionism. If Sullivan’s “small yard” grows larger, with US tariffs imposed not only on imported goods from China but also on goods from third-country suppliers that either use components produced in China or by Chinese firms located in these countries – the benefits to these suppliers will be reduced.
In the language of FTAs, rules of origin can be so restrictive on Chinese inputs that third-country suppliers gain less than they would otherwise.
In the first wave of discriminatory protectionism unleashed by Trump, the scope of protectionism was limited to direct imports from China. As a result, as documented by Aaditya Mattoo and others at the World Bank, third countries like Vietnam benefitted significantly.
This time, given bipartisan support in Washington for anti-China legislation, the scenario of a growing yard cannot be ruled out.
Broadly speaking, the countries affected by Western protectionism can be divided into two groups: those integrated into the Chinese supply chain, such as Vietnam, Thailand, Indonesia, Malaysia, and South Korea, and those less dependent on it, like Mexico, India, Turkey, Brazil, Poland, and Hungary. The second group stands to gain more from US trade policies.
India offers a prime example. It has successfully attracted several Western firms exiting China since launching its “China Plus One” strategy in 2014. Notably, Apple has significantly expanded its iPhone manufacturing operations in India, and Tesla reportedly may follow suit.
This shift presents India with an opportunity to revitalise its consistently underperforming manufacturing sector. To this end, the government is offering subsidies to attract foreign investment and offset disadvantages such as relatively poor infrastructure.
By increasing the returns on investing in India, current US trade policy could complement its own industrial policy. If India can establish a supply chain that is largely independent of China – a trend that is slowly under way in the electronics sector – it could gain a competitive advantage over China and countries linked to it.
Solar panels are a case in point. I recently visited an American-owned factory just outside of Chennai that produces solar panels for export to the US. This operation owes its success to Trump’s tariffs on imported solar panels from China, which the Biden administration has maintained.
Without these measures, Chinese manufacturers’ efficiency and scale – helped by massive government subsidies – would have rendered India an unattractive investment destination. But India was able to seize the opportunity and increase its solar-panel exports.
More broadly, the greater the overlap between America’s strategic interests and third countries’ capabilities and comparative advantages, the more likely that discriminatory protectionism will be long-lasting and provide certainty to investors seeking to diversify away from a ruthlessly efficient China.
In pharmaceuticals, for example, India has the capability to step in if the US decides to impose tariffs on Chinese drug manufacturers, which dominate the global production and export of active pharmaceutical ingredients.
But China’s competitors should curb their enthusiasm. Discriminatory protectionism is currently confined to relatively sophisticated industries and is unlikely to extend to labour-intensive sectors like apparel and footwear, where poorer countries have a stronger comparative advantage.
More importantly, US and EU discriminatory protectionism is beneficial only in moderation. Should today’s trade war escalate into a full-scale geopolitical conflict, any potential advantages would be negated by a broader economic downturn and increased uncertainty, which could have a chilling effect on global trade and investment. In this scenario, everyone would lose.
Arvind Subramanian is a senior fellow at the Peterson Institute for International Economics and former chief economic adviser to the Indian government.
The views expressed are those of the writer and do not necessarily reflect those of FMT.
KUALA LUMPUR, May 28, 2024: The war-waging US has lost its competitiveness in manufacturing, science and technology - so it wantonly imposes tariffs on Chinese imports.
But who is the US really hurting? Only itself and Americans who have to pay more for products, both American and Chinese.
Well, China can also do the same and hurt American products with similar high tariffs on American imports in China, and that is happening.
So, imposing such tariffs only hurts Americans more as China’s domestic and foreign markets are solid, and China does not really need the US.
As long as the rest of the world continues to trade with China, the US is damned.
As for Malaysian consumers, will they choose to buy US-made cars or China-made cars? That is the reality in international trade and commerce.
No News Is Bad News reproduces news reports on the tariff issues and see what the US “free and fair trade” is all about:
U.S. Hikes Tariffs on Chinese Imports
Visual Capitalist May 16, 2024
Overview
What We’re Showing
The new and current U.S. tariff rates set on a variety of Chinese imports under Section 301, a provision that allows the U.S. government to investigate and respond to unfair trade practices by foreign countries.
Tariff rates and implementation years for the new rates come from The White House’s May 14 press release announcing tariff rate hikes.
Implementation years for the current rates comes from the Office of the United States Trade Representative and United States International Trade Commission.
What are Tariffs?
Tariffs are taxes imposed by a country on imported goods to protect domestic industries, regulate trade, or generate government revenue.
Chinese EV Industry Takes A Hit
The U.S. hiked up tariff rates for a range of Chinese imports in the EV industry, including semiconductors, lithium-ion batteries, and other battery parts. Notably, tariffs on electric vehicles were also bumped to 100%.
The U.S. also introduced new tariffs on certain critical minerals, which are integral to manufacturing battery parts and semiconductors.
About the Tariffs
Current tariff rates for steel and aluminum products, as well as personal protective equipment (PPE), range from 0 to 7.5%.
Tariffs in this infographic that were implemented in 2019 were initially set at 15% and later halved to 7.5% in January 2020.
Imported Good | Current rate | New rate | Current rate implementation year | New rate implementation year |
Electric vehicles | 25% | 100% | 2018 | 2024 |
Semiconductors | 25% | 50% | 2018 | 2025 |
Solar cells | 25% | 50% | 2018 | 2024 |
Syringes and needles | 0% | 50% | N/A | 2024 |
Some steel and aluminium products | 7.5% | 25% | 2019 | 2024 |
Lithium-ion EV batteries | 7.5% | 25% | 2019 | 2024 |
Lithium-ion non-EV batteries | 7.5% | 25% | 2019 | 2026 |
Battery parts | 7.5% | 25% | 2019 | 2024 |
Some personal protective equipment | 7.5% | 25% | 2019 | 2024 |
Rubber medical and surgical gloves | 7.5% | 25% | 2019 | 2026 |
Natural graphite and permanent magnets | 0% | 25% | N/A | 2026 |
Other critical minerals | 0% | 25% | N/A | 2024 |
Ship-to-store cranes | 0% | 25% | N/A | 2024 |
Data sources
Tariffs implemented in 2019 started at 15% and were reduced to 7.5% in January 2020. Current rate for steel and aluminium products and personal protective equipment ranges from 0 to 7.5%.
China sharpens response, as US sets date for tariff hikes, pushes EU to follow suit
By
Published: May 23, 2024 07:52 PM Updated: May 23, 2024 08:16 PM
China's Ministry of Commerce (MOFCOM) on Thursday reaffirmed the country's commitment to green development and slammed "certain countries and regions" mulling to take restrictive measures against Chinese electric vehicles (EVs), in response to reports of a prominent Chinese expert calling for a temporary tariff hike on imported cars with large engines.
The remarks marked a sharpened response to the US and the EU's crackdown measures against Chinese EVs and other new-energy products, as Washington has set a date for imposing tariff increases on a slew of Chinese products and US officials are actively and publicly demanding US allies, particularly the EU, to follow suit.
Chinese officials have repeatedly vowed to take all necessary measures to defend China's interests. And experts said that when the US actually imposes the tariff moves and if the EU would do the same, China will definitely take countermeasures, though the specific moves and their scopes remain to be seen.
At a press briefing on Thursday, He Yadong, a MOFCOM spokesperson, was asked whether he could confirm a media report that China is considering raising the temporary tariff rate on imported cars with engines larger than 2.5 liters and if such a move is a retaliation against the moves by the EU and the US, the spokesperson did not offer a direct response.
"China is firmly committed to the path of green and low-carbon development, and it has always encouraged and supported the green and low-carbon transformation and upgrading of various industries to achieve high-quality development," He said.
He further noted that experts in all industries, including the auto industry, are engaged in research on China's green development path and make recommendations for tackling global climate change.
In an exclusive interview with the Global Times published on Tuesday, a prominent expert in China's auto industry who has participated in drafting various industrial policies suggested that China consider raising temporary tariff rates on cars with engines larger than 2.5 liters, as part of a broad effort to promote green development.
As the move is widely anticipated to have a major impact on auto imports from the EU and the US, many Western media outlets have interpreted the suggested move as Beijing's response to Washington's move to hike tariffs on Chinese EVs and other new-energy products and the EU's so-called anti-subsidy probe into Chinese EVs, which could also lead to tariff hikes.
Responding to the same question, He also slammed the restrictive moves against Chinese EVs.
"What I want to emphasize is that some countries and regions are currently deviating from the concept of green development, violating the principles of the market economy and WTO rules, and introducing restrictive measures in the field of new-energy vehicles," He said.
Such moves will only harm the interests of their own consumers and undermine the global green transition and the world's capacity to tackle climate change, the MOFCOM spokesperson said.
The remarks came after the US announced on Wednesday US time that it will start imposing increased tariffs on an array of Chinese products, including EVs, EV batteries, semiconductors and medical products on August 1. While US officials previously announced the tariff hikes, this is the first time the US has revealed explicitly the date when the tariff increases will take effect.
Chinese experts said China will not sit idly by if its legitimate rights and interests are harmed by other countries, and China will, without any doubt, take countermeasures to defend its rights and interests.
"China has repeatedly warned the US against taking such a move and called for addressing differences through cooperation. But the US has shown no sincerity. So, if it doesn't heed such calls, China will take countermeasures as it did in 2018," Bai Ming, researcher of Chinese Academy of International Trade and Economic Cooperation, told the Global Times on Thursday, referring to China's reciprocal tariff hikes in response to the tariff war that the US launched against China.
Countermeasures
"China will fight back," Gao Lingyun, an expert from the Chinese Academy of Social Sciences who closely follows China-US economic and trade issues, told the Global Times on Thursday, noting that the specific measures and the scope remain to be seen.
Some Chinese experts said there are several steps China can take in a proportionate manner that is also in line with international trade rules. First, China could file a complaint with the WTO, as previously ruled against the US moves, and relevant firms, including those from China, could file lawsuits against the US. However, such moves are unlikely to resolve the issues in the short term, "so other countermeasures must also be prepared," Bai said.
Some experts also suggested that given the negative impact of Washington's moves on global green, low-carbon development and efforts to tackle climate change, there are serious questions about its commitment in the area - as such, relevant cooperation should also be reviewed.
Highlighting the global implications of Washington's toxic policies, in addition to its own tariffs, US officials have also been stepping up pressure on US allies, including the EU, to follow suit in cracking down on Chinese EVs. Brussels has launched a so-called anti-subsidy investigation into Chinese EVs, which could lead to hiked tariffs. On Thursday, US Treasury Secretary Janet Yellen said G7 finance ministers will discuss China's "excess industrial capacity and potential responses,'' Reuters reported.
Chinese experts said that while the current US administration also followed the previous administration's wrong path of engaging in a tariff war, its approach is a little different in that it seeks to pressure allies to follow its suit. However, US allies have different interests to consider, when it comes to actually taking harmful measures, even though they are under great pressure to heed the US' commands, experts noted.
"For example, when it comes to the car industry, there are greatly intertwined interests between China and the EU. Many Chinese car exports contain EU components or technologies, so EU companies also profit from China's car exports," Gao said, noting that any move taken by EU authorities will likely be temporary and limited in scope.
Moreover, any temporary adjustments on tariffs on large-engine cars could also have a major negative impact on EU carmakers, as many luxury sedans and sports utility vehicles that have engines larger than 2.5 liters in China are imported from EU countries, such as Germany, according to experts. - Global Times
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