In One Sentence

• The Office of the U.S. Trade Representative (USTR) raised tariffs on electric vehicles, batteries, critical minerals, semiconductors, solar cells, cranes and steel, and aluminum products from China, following the conclusion of a statutory four-year review of the Trump administration-introduced Section 301 China tariffs.
• China criticized the move, saying that it will take “all necessary measures to defend its rights and interests.”
• Some industrial representatives have expressed concerns that the tariff increases were primarily driven by political needs and would invite retaliation from China, possibly triggering a new or escalated trade war.
• Meanwhile, Senator Sherrod Brown, Senator Marco Rubio and other lawmakers have argued that even more drastic trade enforcement measures are needed, such as a complete ban on all Chinese EV imports.
• Earlier, the Department of Treasury released a final rule on the EV tax credits under the Inflation Reduction Act, which denies tax credits to EVs using certain percentages of critical minerals and battery components sourced from China.

Mark the Essentials

• The U.S. tariff rate on electric vehicles under Section 301 will increase from 25% to 100% in 2024; the tariff rate on lithium-ion EV batteries will increase from 7.5% to 25% in 2024; the tariff rate on lithium-ion non-EV batteries will increase from 7.5% to 25% in 2026; and the tariff rate on battery parts will increase from 7.5% to 25% in 2024. Current fact sheets and press releases do not specify whether the tariffs would extend to EVs that are not manufactured in or not shipped from China.
• The White House’s National Economic Council Director (NEC) Lael Brainard argued that the tariff increases aim to ensure that President Biden’s “historic investment in jobs” are not “undercut by a flood of unfairly underpriced exports from China.” Meanwhile, the White House announced that the 100% tariffs on Chinese electric vehicles will “protect American manufacturers” and ensure “the future of the auto industry will be made in America by American workers.”
• In an effort to electrify its auto lineup and quickly build competitiveness in the electric vehicle market, Stellantis N.V., which owns the Jeep, Chrysler, Maserati and Peugeot brands, has purchased stocks in Chinese EV company Zhejiang Leapmotor Technology Co. The deal gives Stellantis exclusive rights to sell Leapmotor’s EVs outside of China, initially in Europe through its dealership and distribution network, and potentially participate in Leapmotor’s manufacturing operations.
• Hesai Technology Co., a Shanghai-based, Nasdaq-traded company that develops sensor technologies for self-driving cars, is currently suing the United States government for listing Hesai as a company that aids China’s military. Hesai says that its products are designed and made for commercial and civilian use only and argues that the U.S. government listing has disrupted its plans to build manufacturing plants in the U.S.
• Commentators argued that given China’s sheer scale and competitiveness in renewables manufacturing, it is necessary to work with the Chinese EV manufacturing base and thereby hasten the electrification and greening of the transportation sector.

Keeping an Eye On…

• Almost twenty-four months to the week that it initiated a review of the Section 301 tariffs on China, the Biden administration released the review’s findings and its follow-on tariff measures. (By comparison, the Trump administration had taken just nine months to get from the initiation of a probe to an announcement of tariffs in April 2018.) Per the administration’s telling, the decision to raise a selective few Section 301 tariffs on China is no big deal. The amounts involved are small ($18 billion of raises) and relate to sectors where historic investments are underway, by way of the Inflation Reduction Act’s and the Bilateral Infrastructure Act’s domestic preference-based subsidies. The tariffs will prevent an undercutting of these investments—although the argument marshaled by the administration to justify the remedy to this undercutting (namely, that China is producing at a rate that is in excess of any plausible estimate of global demand for that good) is in fact identical to the one being trotted out by Beijing to defend its case regarding EVs (namely, that global capacity for EVs is still far below market demand). Besides, the new tariff raises are not broad-based, the administration says, unlike the across-the board imposition being under threat of application by Donald Trump. The administration’s economic case for its tariffs is utterly wrong-headed—although perhaps not its underlying electoral case. First, the Section 301 tariffs should have been substantially pared down, and some even eliminated; tariffs are and remain a tax on the American consumer, and a few tariff lines are in fact even being raised. Next, the select dozen or so Chinese imports which are sought to be further priced out of the U.S. market (batteries, semiconductors, solar cells, steel, EVs, etc.) are, in fact, already barred for the most part via executive orders, anti-dumping orders, content requirements, foreign adversary rules, and suchlike. Third, the Section 301 tariffs has been the least potent tool within the armory that has been deployed against China by the Trump and Biden administrations. Their negatives outweigh the marginal supply chain resiliency gains achieved. Finally, the lawless nature of the measure—most notably how the tariffs fly in the face of the United States’ basic obligations at the WTO—reflects poorly on the Biden administration’s adherence to international law-bound means. It is particularly disheartening that the administration has chosen to double-down on the Trump team’s forced technology argument—that Beijing coercively pressures U.S. companies to transfer technologies on non-market terms as a condition for entry into the Chinese market—to peddle its case for the continuation of the tariffs. Conditioning the approval of foreign inward investment in exchange for mandated performance requirements, such as technology transfer, local content, offsets, and export performance, is a violation of the terms of China’s WTO Accession Protocol. If the administration believes this to be the case, it should have pursued a legal challenge at the WTO. It is telling that when the Trump administration was confronted on this question within the WTO’s dispute settlement system, it confessed that it had no case to submit (it defended the Section 301 tariffs as being “necessary to protect public morals”), and that its legal challenge was limited to two smaller intellectual property rights claims, which were subsequently by resolved by Washington and Beijing during the consultation phase. That a more internationalist-minded Democratic administration would now continue this charade is a further blow to the global trading order. One step at a time, the U.S. is reverting to its pre-WTO era ‘might-is-right’ dictum. Forty years ago, in his incessant trade battles with Japan, Robert Lighthizer—Reagan’s Deputy USTR and Trump’s once and future USTR—shifted away from using the GATT’s (at the time, toothless) dispute settlement provisions and rely solely on the Section 301 tool. Whereas all but one of the Section 301 investigations against Japan from the late-1970s to the mid-1980s was accompanied with the bringing of a formal GATT dispute, none of the Section 301 investigations initiated thereafter resulted in the bringing of a formal GATT case. Unilateralism trumped third-party dispute resolution measures, then, and is once again coming to dominate U.S. trade enforcement policy today. The main problem, though, forty years on, is that the U.S. no longer strides the international trading order like a colossus. It isn’t even the largest global trader anymore. And while it is true that the American consumer still towers over its peers and therefore makes trade sanctioning an inviting policy tool, the days of serving as the global primary consumer of last resort are numbered too. Which begs the question: is it not in the longer-term interest of the U.S. and its producers to abide by—and not freeride on—multilateral trade rules? Protectionism can cut both ways, after all.

Expanded Reading

• FACT SHEET: President Biden Takes Action to Protect American Workers and Businesses from China’s Unfair Trade Practices, The White House, May 14, 2024
• U.S. Trade Representative Katherine Tai to Take Further Action on China Tariffs After Releasing Statutory Four-Year Review, Office of the United State Trade Representative, May 14, 2024
• US trade chief recommends higher tariffs to address China’s ‘unfair’ practices, Reuters, May 14, 2024
• Will Biden’s Trade War With China Get Results?, The New York Times, May 14, 2024
• The White House’s Green Trade War Is Just Getting Started, Bloomberg, May 14, 2024 
• Biden hits Chinese electric cars and solar cells with higher tariffs, BBC, May 14, 2024
• White House unveils new protectionist tariffs on Chinese-made EVs, Xinhua News, May 14, 2024
• Chinese Clean Tech Is Not the Enemy, Bloomberg, May 14, 2024
• Robocar Supplier Sues US, Disputes Alleged Chinese Military Ties, Bloomberg, May 13, 2024
• Foreign Ministry Spokesperson Lin Jian’s Regular Press Conference, Ministry of Foreign Affairs of the People’s Republic of China, May 10, 2024 
• U.S. to Announce New Tariffs on Chinese Electric Vehicles, The New York Times, May 10, 2024
• Jeep’s China EV Partner Could Drag It Into a Trade War, Bloomberg, May 8, 2024