President Joe Biden’s administration has announced new tariffs on Chinese goods, with the goal of achieving three main objectives. While the main purpose of tariffs is typically to prevent foreign goods from entering the United States, this is not the primary focus of these new measures.
The most significant tariff being imposed is a 100% rate on electric vehicles, a category in which China does not heavily compete. In fact, of the nearly $19 billion worth of electric cars imported by the US last year, only $370 million came from China – less than 2% of the total. This highlights the fact that while China is a world leader in electric car manufacturing, they do not dominate the US market.
However, China has achieved dominance in the global electric vehicle business by investing heavily in not only producing cars, but also in manufacturing the batteries, chemicals, and minerals that go into them. This has allowed them to control the entire supply chain for electric vehicles, as well as other green technology sectors such as solar panels, wind turbines, and hydrogen electrolysers.
As the world moves towards a new industrial revolution with a focus on achieving net zero emissions, the US is determined not to let China win the race to build these industries. This has led to the Biden administration implementing new tariffs on not just electric cars, but also on solar panels, steel, and aluminum. These measures are part of a broader strategy to compete with China in the production of green technology and semiconductors.
While economists generally oppose tariffs due to the potential negative effects on the global economy, the Biden administration is willing to take this risk in order to achieve their goals. These tariffs also serve as a political message to show the American electorate that President Biden is tough on China and can outdo his predecessor, former President Donald Trump. However, it is likely that China will retaliate with their own tariffs, making trade and industrial strategy between the two economic superpowers more dramatic and interesting than ever before.
