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US trade wars will intensify under Biden or Trump
President Joe Biden now joined former President Donald Trump as a “tariff man,” leaving all of Trump’s tariffs on China in place and imposing his own set of fees.
Biden’s announcement this week aims to keep certain Chinese imports out of the US economy and protect national production semiconductors, green energy technology and other favored industries.
And whether Biden or Trump wins the election in November, more protectionism will be coming to US trade policy.
Like most political rivals, Biden and Trump have different logics and strategies for eliminating China. But both men have important reasons to continue what they started.
The most important target of Biden’s new tariffs is Chinese-made electric vehicles. The new rules increase the import tariff on Chinese EVs from 25% to 100%, meaning a Chinese-made EV with a base price of $12,000 would now cost $24,000, up from $15,000 previously.
There is almost no Chinese-made EVs on sale in the United States right now. Biden’s plan is to keep it that way.
President Joe Biden announces increased tariffs on Chinese goods to promote American investment and jobs in the White House Rose Garden on May 14, 2024, in Washington, D.C. (Win McNamee/Getty Images) (Win McNamee via Getty Images)
But there is a giant gap, one that everyone in the U.S. auto industry is fully aware of and very concerned about.
Biden’s new tariffs, like all of Trump’s tariffs on China, apply only to products shipped from China to the United States. They do not apply to products manufactured by Chinese companies in any other country, or to products manufactured in China and shipped to the United States through third countries to avoid China-specific tariffs.
Chinese automakers have operations already established in Mexico It is announced plans to enter the US market. Chinese automakers could also set up shop in Canada.
Both nations belong to a free trade agreement with the United States, which allows them to import products into the United States tariff-free or with very low tariffs.
And neither Biden nor Trump have outlined a clear solution to this problem – which someone will have to do.
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“O [Biden] the tariff announcement is just a first step,” explained research firm Capital Alpha Partners in a May 14 analysis. “It’s one thing to tax Chinese-made electric vehicles originating in China. Another thing is to impose tariffs on EVs made by Chinese manufacturers in third countries, such as Mexico, Canada, EU countries and other third countries.”
trump said in March that, if elected for a second term, he would impose a 100% tariff on Chinese cars manufactured in Mexico. Biden tariff plan led Trump to up the ante at a rate of 200%.
But it’s unclear whether the president can select products for tariffs if they come from a free trade partner, especially if those products comply national content rules, such as US-Mexico-Canada commercial pact.
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On a White House Briefing May 14, a reporter asked U.S. Trade Representative Katherine Tai what the Biden administration planned to do about Chinese vehicles made in Mexico. “I would just ask you to stay tuned,” Tai said.
Capital Alpha believes that Congress will need to pass new laws that give the executive branch additional authority to block or heavily tax imports under a trade pact if they come from an economic competitor like China.
“We do not believe Congress is ready to answer this question at this time,” the research firm said in its May 14 report. “But we expect to see hearings and possibly some bills this spring and summer. The real legislation, however, will have to happen next year, after the presidential elections.”
It’s also entirely possible that crafty Chinese automakers could build cars in China and Mexico, respecting all the rules of the trade pact, and still sell them in the U.S. market for less than their competitors.
Given that China has identified electric vehicles and the green energy technology supply chain as critical industries crucial to the country’s economic development, these industries receive special assistance from the Chinese government. National government subsidies could help make up the difference if they fail to make legitimate profits.
The US president could take executive action and wait for years to resolve the matter. But that probably wouldn’t deter the Chinese. There is now compelling evidence that some Chinese exporters escaped Trump’s tariffs by send goods to the United States through other countries, such as Vietnam.
And not only is China known for playing the long game in terms of economic policy, it could also win a legal challenge if its products meet all the requirements of the three-nation trade agreement.
Even so, both Biden and Trump are expected to continue criticizing Chinese efforts to capture US market share and displace American producers. Especially given how this issue resonates in swing electoral states dependent on manufacturing, such as Pennsylvania, Michigan and Wisconsin, which will contribute greatly to determining who will win in November.
So there are political points to be gained by convincing voters that we are tougher on China than others.
But either candidate will face an ongoing challenge to protect American manufacturers and their workers.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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