In One Sentence

• In response to the Biden administration’s continuation and enhancement of the Trump administration-imposed Section 301 tariffs, China reiterated that it “firmly opposes and lodges solemn representations” and vowed to “take resolute measures.”
• Following the proposed U.S. tariff increases on China, U.S. Secretary of the Treasury Janet Yellen urged European officials to respond to China’s “industrial policy” “strategically and in a united way,” warning that failure thereof would risk “the viability of businesses” in the U.S., Europe and beyond.
• European Commission President Ursula von der Leyen said that the EU shares “some of the concerns of our [US] counterparts” but prefers “a different approach, a much more tailored approach.”
• The G7 Finance Ministers and Central Bank Governors issued a communique at their meeting in Stresa, Italy expressing “concerns about China’s comprehensive use of non-market policies and practices” and vowed to “ensure a level playing field in line with WTO principles.” 
• WTO Director-General Ngozi Okonjo-Iweala said that the WTO is “very concerned” about Washington’s protectionist policies towards China, cautioning against further escalation of protectionist measures and further deterioration of the U.S.-China relationship.
• U.S. Deputy Secretary of Commerce Don Graves told industrial representatives from the U.S. renewable energy sector that the administration seeks to be “very responsive and…very thoughtful” to support the sector through its current “evolution” and against “coercive” actions that are happening “abroad.”

Mark the Essentials

• Criticizing the Biden administration’s 102.5% tariff on Chinese electric vehicles as a “misguided half-solution,” U.S. Senator Marco Rubio (R-FL) argued that a “comparable tariff increase” should also be placed on Chinese internal combustion engine vehicles to “adequately address the [overall] extinction-level threat that Chinese vehicles…pose to American automakers.” 
• Along with the decision to maintain and expand the Trump-imposed Section 301 tariffs on Chinese goods, the Office of the U.S. Trade Representative (USTR) has proposed the establishment of an exclusion process “targeting machinery used in domestic manufacturing,” including solar manufacturing equipment.
• Amidst a range of efforts to “strengthen American solar manufacturing,” the Biden administration has announced that it will no longer exempt bifacial solar panels from the U.S.’ Section 201 safeguards tariffs. 
• During a mid-May USTR hearing on promoting supply chain resilience, witnesses argued that efforts to “rebuild U.S. production capacity” has unique and irreplaceable importance which cannot be substituted by nearshoring. Accordingly, industrial representatives at the hearing proposed measures such as expansion of labor rights and enforcement in trade treaties, tightening of rules-of-origin rules, additional U.S. trade enforcement tools, and preferential government procurement policy.
• Across the Atlantic, European Commission President Ursula von der Leyen observed that Europe fundamentally seeks both competition and trade with China, albeit in a fair way and according to established rules. According to von der Leyen, the EU has concerns over issues such as China’s “artificially cheap products,” “excessive production subsidies,” and difficulties for European companies to access the Chinese market “under fair conditions.”

Keeping an Eye On…

• Another week, another round of skirmishing on ‘overcapacity’ at the podium and over the airwaves. U.S. National Economic Advisor Lael Brainard led off the latest round of this tussle by admonishing Beijing for facilitating excess global supply by unfairly depressing domestic capital, labor and energy costs, during a speech on May 16. This industrial overcapacity disrupts market-based demand signals and undermines innovation and competition, she said. Carrying the baton forward, Treasury Secretary Janet Yellen sounded the alarm on the “threat to the development of clean energy industries around the world” posed by Chinese ‘overcapacity’ and called for a united response during a speech in Frankfurt ahead of the G7 Finance Ministers Meeting. The G7 Finance Ministers statement has vowed to “ensure a level playing field, in line with WTO principles” to counter China’s “comprehensive use of non-market policies and practices.” This has, in turn, drawn a rebuke from Beijing which observed that the G7’s China overcapacity hype is “completely against the facts and laws of economics” and that protectionism serves nobody’s interest. Across the Atlantic, meanwhile, Josep Borrell, the EU’s High Representative for Foreign Affairs and Security Policy, cautioned that with the U.S. market becoming progressively closed to Chinese goods, including with the imposition of tariffs on Chinese-made EV’s, the threat of diversion of China’s ‘excess capacity’ to Europe was real and needed to be countered. It is the terms of this countering that merit watching closely in the weeks ahead. Will the EU resort to the use of conventional trade defense instruments (safeguards; anti-dumping/countervailing duties) that are judicable in third-party settings (both the EU and China are parties to the Multi-Party Interim Appeal Arbitration Arrangement) to slow down the ingress of Chinese green and other industrial goods into the bloc? Will it perhaps substitute Chinese-invested local production for China-originating imports? Or will the EU resort to foreign adversary-based national security arguments to arrest entirely the entry or local production of Chinese-made green goods? Most indicators point to the former, especially with the EU’s imports of Chinese-made industrial and transport equipment having fallen for six consecutive quarters. That said, it is the bloc’s use of its newest non-trade defense instruments (the Foreign Subsidies Regulation, or FSR, and the International Procurement Instrument, or IPI) that will bear watching closely. China’s ‘gray zone’ industrial subsidies may have met their match in these instruments. But applied indiscriminately, the FSR and IPI could also touch off a trade war with China, placing the bloc’s US$275 billion of agricultural and goods exports at threat of reprisals. Brussels and Beijing have much to think through over these busy and heated summer months.

Expanded Reading

• G7 Finance Ministers and Central Bank Governors’ Communiqué, The U.S. Department of the Treasury, May 25, 2024
• USTR extends some Chinese tariff exclusions, but many to fall away, Reuters, May 24, 2024
• Yellen wants G7 ‘wall of opposition’ to China’s excess industrial capacity, Reuters, May 23, 2024
• The U.S. Raised Tariffs on China. Now It Wants Europe’s Support, The Wall Street Journal, May 21, 2024
• Why von der Leyen doesn’t want to join the US in a trade war with China, Financial Times, May 21, 2024
• Janet Yellen urges Europe to join US in Chinese exports crackdown, Financial Times, May 21, 2024
• FACT SHEET: Biden-Harris Administration Takes Action to Strengthen American Solar Manufacturing and Protect Manufacturers and Workers from China’s Unfair Trade Practices, The White House, May 16, 2024
• China firmly opposes U.S. tariff hike on Chinese goods: commerce ministry, People’s Daily Online, May 15, 2024
• China strongly opposes U.S. tariff hikes, pledging measures to defend rights, Reuters, May 14, 2024
• Rubio Grills Biden on EV-focused China Tariffs, Office of Sen. Marco Rubio, May 14, 2024