Biden Ups the Ante on China Tariffs
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Biden Ups the Ante on China Tariffs

Brownstein Client Alert, May 14, 2024

Today, following the completion of the Section 301 review by the Office of the U.S. Trade Representative (USTR), President Joe Biden announced a series of tariff hikes on a wide range of Chinese goods, including semiconductors, batteries, solar cells and critical minerals. Overall, the new duties will target about $18 billion worth of goods. The new tariffs, set to take effect between 2024 and 2026, are the outcome of USTR’s long-awaited multiyear review and represent the Biden administration’s most comprehensive update to the China tariff regime first imposed by former President Donald Trump. Biden’s action is in conjunction with the bipartisan hawkish approach to trade demonstrated by the U.S. Congress in the years since the Trump presidency. The increased duties are also viewed as an effort by Biden to boost his domestic support—especially in Rust Belt states—ahead of his rematch in November against Trump. The topic of increasing tariffs on China is a big focus of Biden’s campaign swings around the country. Aside from domestic political considerations, we believe it is likely that the latest tranche of tariffs will serve to increase friction in U.S.-China relations, despite assurances from senior administration officials that their intentions are not political. Although Biden officials have said the Chinese were aware these actions were coming and downplayed their possible impact on China, Chinese officials have responded with threats of retaliation commensurate with the American action.

 

Breakdown and Impact of the New Tariff Hikes

In both the leadup to and following the announcement, Biden and senior White House officials have touted the tariffs as their latest effort to safeguard the administration’s domestic “green energy” investments in key industrial and manufacturing sectors, such as through the CHIPS Act, the Inflation Reduction Act (IRA), and the Bipartisan Infrastructure Law. Speaking to reporters ahead of the rollout, National Economic Council Director Lael Brainard said Biden “knows it is vital to invest in American manufacturing and workers and to enforce our trade laws to give our workers and businesses a fair chance to compete,” adding that the tariffs “level the playing field for U.S. automakers and U.S. autoworkers.” Similarly, Treasury Secretary Janet Yellen said the duties are intended to ensure that the United States has “healthy and active” firms.

 

Product(s)

Tariff Percentage Increase & Timing

Battery parts (non-lithium-ion batteries)

Increase rate to 25% in 2024

Electric Vehicles (EVs)

Increase rate to 100% in 2024

Facemasks

Increase rate to 25% in 2024

Lithium-ion EV batteries

Increase rate to 25% in 2024

Lithium-ion non-EV batteries

Increase rate to 25% in 2026

Medical gloves

Increase rate to 25% in 2026

Natural graphite

Increase rate to 25% in 2026

Other critical minerals

Increase rate to 25% in 2024

Permanent magnets

Increase rate to 25% in 2026

Semiconductors

Increase rate to 50% in 2025

Ship-to-shore cranes

Increase rate to 25% in 2024

Solar cells (whether or not assembled into modules)

Increase rate to 50% in 2024

Steel and aluminum products

Increase rate to 25% in 2024

Syringes and needles

Increase rate to 50% in 2024

 

The above table provided by USTR outlines the expected tariff increases announced by Biden. Perhaps most notable is that the new duties will quadruple the existing tariff level against imports of Chinese electric vehicles (EVs). Previously, China-made EVs were subject to a 25% tariff in addition to a 2.5% duty applied against all Chinese vehicles. The White House has characterized this increase as a way to protect domestic EV production.

Beyond EVs, the latest tariffs contain stiff increases for a range of other products. Of note, the administration differentiated between lithium-ion batteries used for EVs and those used for other products, such as solar and wind energy plants. This is largely a result of pressure from clean energy firms that argued that such a distinction was necessary in order to prevent cutting them off from China-made batteries, on which the domestic industry remains heavily reliant as domestic manufacturing continues to increase its own capacity. As a result, a senior White House official explained that the 2026 start date for the latter battery group was to effectively provide domestic clean energy producers a “transition phase” to grow U.S.-based manufacturing. For critical minerals, media reports indicate the following critical minerals, which are needed for battery production, would be included in the new tariffs: cobalt, graphite, manganese and zinc. Ahead of the tariff rollout, as another means to alleviate potential complications faced by domestic industry, earlier this month the Biden administration issued a final rule that would temporarily exempt graphite from IRA sourcing requirements.

In a statement, USTR said it will establish an exclusion process for machinery “used in domestic manufacturing, including proposals for 19 exclusions for certain solar manufacturing equipment.” However, administration officials have not yet provided further specifics other than that the process would include a solicitation of public comments. A Federal Register notice is expected to be published next week seeking public comments on today’s announcement.

 

Immediate Reactions

In some ways, the new tariffs may be more bark than bite. For example, while the 100% tariff increase may capture much attention, it is important to recognize that few Chinese-made EVs are currently on the market or imported into the United States. At present, the only China-made EV sold in the United States is made by Polestar. However, a greater impact may be noticed over the longer term if the tariffs cause other Chinese EV automakers to resist entering the U.S. market. Should domestic EV sales continue to decline, the Biden administration’s efforts to further its desired transition from gas-powered cars to EVs may be further inhibited by a lack of market choices for consumers. However, the administration may view this prospect as a pathway to provide further assistance and investments in the domestic EV industry. Moreover, the White House has warned that opening up the domestic market to Chinese EVs could threaten U.S. economic security. On a May 13 conference call with reporters, an administration official stated that “We need diversified, not concentrated, production of our most critical goods and technologies,” adding that this “was the lesson of the [COVID-19] pandemic.”

The White House has also pushed back on concerns that narrowing the pathway for domestic access to Chinese equipment will inhibit the country from achieving its broader climate-conscious goals. A senior administration official said such an effort entails “diversified, not concentrated production” of key goods and declared that “resilient supply chains” are the most critical element for the nation to successfully make the green transition.

With this announcement, we expect to see a more concentrated effort by the administration, with strong pressure from Congress, to ensure that China does not succeed in evading the tariffs by establishing new EV production facilities in Mexico to take advantage of the reduced tariffs feeding into the North American auto supply chain as outlined by the United States-Mexico-Canada Agreement (USMCA).

On Capitol Hill, the announcement was well-received by congressional Democrats. Senate Banking, Housing, and Urban Affairs Committee Chair Sherrod Brown (D-OH)—who has previously called for an outright ban on imports of Chinese EVs—issued a statement applauding the move. Rep. Dan Kildee (D-MI) also commended the tariffs in a statement and Sens. Debbie Stabenow (D-MI) and Gary Peters (D-MI) expressed their approval via tweets. Similar sentiments were also expressed by a key pair of progressive Senate Democrats: Sens. Chris Murphy (D-CT) and Elizabeth Warren (D-MA). Across the aisle, congressional Republicans’ responses varied from criticizing Biden over taking so long to deploy the penalties to not going far enough but not opposition to the action. House Ways and Means Committee Chair Jason Smith (R-MO) issued a statement declaring that the drawn-out two-year-long Section 301 review period was “inexcusable,” noting how under the Trump administration, the original 301 investigation, which resulted in the original tariffs, took only “a mere eight months.” In a tweet, Sen. Marco Rubio (R-FL) criticized the tariff plan for not also covering gas-powered cars and trucks, while Rep. Mariannette Miller-Meeks (R-IA) tweeted that Biden has “waged an all-out war on American consumers, instead pushing policies that empower countries like China.”

China has unsurprisingly condemned the tariffs, contending they violate World Trade Organization (WTO) rules and further inflame trade-related tensions that began under Trump. Moreover, In advance of the announcement, Chinese Foreign Ministry spokesperson Wang Wenbin warned that the measures would serve to “harm the world’s green economic transition and climate action.” Separately, Foreign Ministry spokesperson Lin Jian said his country would “take all necessary measures” when responding to the tariffs. While China has yet to outline what subsequent steps it will take, Treasury Secretary Janet Yellen hoped that there will not be “a significant Chinese response,” although she caveated that major retaliation is “always a possibility.” Finally, initial reports indicate that the European Union (EU) will not issue similar tariffs due to concerns that such efforts would run afoul of WTO guidelines.

 

Elections Implications

Prior to Biden’s announcement of the new tariffs, Trump announced plans to place tariffs on electric vehicles coming from Mexico, should he win the presidency. According to federal lawmakers and three former Trump administration officials, one of Trump’s trade policies is to impose steep auto tariffs on Mexico if it does not agree to halt the shipment of Chinese-made EVs into the United States. The duties on Mexican autos, including Trump’s plan for a 10% tariff increase on foreign imports and 60% duties on China, would escalate trade conflicts with both China and Mexico that could upend the auto supply chain across North America.

While the White House claims politics were not a factor in its decision-making, it is hard not to draw a line between the new tariff action and its broad appeal to union workers and others in key states like Michigan, Pennsylvania and Wisconsin. The United Auto Workers (UAW) came out in support of the tariffs, declaring in a statement that it “applauds today’s decisive action from the White House on ensuring that the transition to electric vehicles is a just transition.” Whether this action by Biden serves to mobilize rank-and-file union workers to vote for him remains to be seen.

Looking ahead, Biden and his allies will likely argue that the new tariff regime is emblematic of his broader efforts to be tough on China. Already, he has used the recent action to differentiate his China-focused efforts from Trump. At a White House event to announce the duties, Biden said his action is “a smart approach” that is “strategic and targeted.” He continued by asking the audience to “Compare that to … what the prior administration did. My predecessor promised increased American exports and to boost manufacturing, but he did neither. He failed.” An argument that is sure to be continued as the presidential campaign intensifies over the coming months.

Brownstein is uniquely positioned on issues relating to international trade and is well-positioned to assist key stakeholders with their response to the recent tariff announcement. If you want to know more about the impact of the tariffs and how to make sure your interests are considered, please contact one of the authors of this alert.


THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING NEW TARRIFFS ON CHINESES GOODS. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.

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