What will happen to Chinese goods with increased US tariffs?

Biden's new tariff hike is expected to have limited short-term impact, but pose a long-term challenge if US allies follow suit.

Last week, the White House announced tariffs on $18 billion worth of Chinese imports, including electric vehicles, semiconductors, lithium-ion batteries, and medical equipment.

In April, US President Joe Biden said he "doesn't want to go to war with China" but that the US needs to fight Beijing's "unfair economic practices and industrial overcapacity."

"American workers can outwork and outcompete anyone as long as the competition is fair. But it hasn't been fair for too long," Biden said this week. "We're not going to let China flood our markets," he added.

Here's what the new tariffs on Chinese goods could mean.

Electric Vehicles

The Biden administration is quadrupling the electric vehicle tax to ensure that “the future of the auto industry is built in America by American workers.”

A batch of electric vehicles is prepared for export at the Taicang International Container Port in Suzhou, Jiangsu province, on May 9. Photo: Reuters

Nomura predicts a “limited short-term impact” as the US accounts for only 1% of the country’s total vehicle exports. China will export 12,362 electric vehicles to the US in 2023, with about 10,000 of them from the Polestar brand, according to the Center for Strategic and International Studies (CSIS).

Meanwhile, electric vehicle makers are increasing their shipments to South America. BYD’s first-quarter exports increased more than 150% to more than 97,000 vehicles, with Brazil accounting for 15,700 vehicles, or 16%. Japanese commodity trader Hanwa also said that China’s electric vehicle exports to Mexico have increased in recent months. According to Nikkei, most major electric vehicle companies are competing to book more EV shipping slots to Brazil and Mexico.

But the impact could be bigger if the EU and Britain follow the US in raising tariffs. "We are not worried about the new US tariffs because we do not sell directly to the US, but we are worried about what signal it will send to other countries, especially US allies," the head of a Chinese electric vehicle company told Nikkei.

In October, the European Commission launched an investigation into whether Chinese electric vehicle companies benefit from state subsidies that help them keep prices down. EU trade chief Valdis Dombrovskis recently hinted that Brussels could impose tariffs before the summer holidays.

Chinese electric vehicle makers see Western Europe as a key export destination, followed by Southeast Asia, according to market research firm TrendForce.

Lithium-ion batteries

Tariffs on lithium-ion batteries used in electric vehicles will rise to 25% from 7.5% this year. Analysts predict the tariff hike will have a deeper impact on Chinese companies exporting lithium-ion batteries for electric vehicles and battery components, giving Japanese and South Korean battery companies a bigger advantage in the US market.

But Chinese battery makers planning to build factories in the US, such as Envision and Gotion High-tech, could benefit. They could be hit harder in 2026, when the 25% tariff on non-EV lithium-ion batteries takes effect.

At that point, Chinese battery exporters could see their cost advantage erode compared to US rivals, who can take advantage of tax incentives provided by the Biden administration under the Deflationary Tariff Act.

Rare Earths

Tariffs on rare earths will increase to 25% in 2026. This is a surprise, experts say, because the US rare earths industry cannot compete with China in terms of market share, cost, and experience.

Rare earths are important strategic and non-renewable resources, widely used in new energy fields such as car engines and wind turbines. The US tariff hike is aimed at protecting domestic businesses and reducing dependence on rare earths imported from China.

China is the world's largest producer of rare earths. It produced 240,000 tonnes of rare earth products last year, accounting for 68% of the global total, according to data from the US Geological Survey.

Semiconductors

Tariffs on semiconductors from China will increase to 50% from 25% in 2025. According to some analysts, the increased tariffs could weaken China's chip manufacturing industry ecosystem. However, manufacturers can integrate their chips into products such as home appliances and electronics, then export the finished products to the US as a way to circumvent the tariffs.

But China’s semiconductor manufacturers that supply larger, more general-purpose chips are irreplaceable, according to the Peterson Institute for International Economics, because Taiwanese and Korean firms like TSMC and Samsung focus on making more advanced chips.

Solar panels

Tariffs on solar panels doubled to 50% this year. But the US market is small for China, and exports there have been subject to tariffs for more than a decade. Last year, China exported $3.35 billion worth of solar panels to the US, less than 0.1% of its total exports. So Nomura says the impact will be limited in the short term.

Employees inspect solar panels at a Chint Solar factory in Hangzhou, Zhejiang province. Photo: Reuters

According to the Center for Strategic and International Studies in Washington, more than 80% of solar panel production now takes place in China, and the cost of producing panels in China is 60% cheaper than in the US.

Chinese solar panel manufacturers have also shifted their supply chains to several Southeast Asian countries such as Malaysia, Cambodia, Thailand and Vietnam to avoid US restrictions. In 2023, the four Southeast Asian countries accounted for about 75% of total US solar panel imports.

In April, several US solar equipment manufacturers petitioned the Commerce Department to impose new tariffs on imports from Southeast Asian countries. Zhong Baoshen, chairman of Longi Green Energy Technology, predicted that solar panels from Southeast Asian countries will have difficulty selling to the US. As a result, manufacturers may have to open factories in the US as an option to access this market.

Medical equipment

This year, tariffs on syringes and needles will increase from 0% to 50%, and on some personal protective equipment such as respirators and masks, they will increase to 25% from the current 0-7.5%. Tariffs on medical and surgical rubber gloves will increase to 25% from 7.5% in 2026.

The US is China's top export market for medical equipment, with exports reaching nearly $10.8 billion last year. However, the impact is likely to be limited as many manufacturers of products subject to higher tariffs have changed industries due to a sharp drop in demand after the pandemic, according to Caixin. In 2023, China's exports of anti-epidemic products fell sharply by 75.7% to about $3.9 billion.

Container Port Cranes

Large ship-to-shore cranes used at ports to unload cargo from container ships to shore and vice versa (ship-to-shore cranes) were hit with a 25% tariff increase this year from 0%. The decision comes after the US Coast Guard issued a Maritime Security Directive in February on cyber risk management for Chinese-made cranes.

Earlier in 2023, US defense officials expressed concerns that Chinese crane manufacturers such as Shanghai Zhenhua Heavy Industries could be used by Beijing as a spy tool, a comment China criticized as “paranoid”.

Senior US administration officials said at the time that about 80% of cargo cranes at US ports were made in China and used Chinese software.

Steel and Aluminum

For some steel and aluminum products, tariffs will increase to 25% this year, from 0% to 7.5%. The White House cited unfair competition in these sectors due to “China’s non-market surplus.”

Experts predict that the impact could be limited. This is because the volume of US imports is relatively low and Chinese steel products are already subject to significant tariffs. According to S&P Global Market Intelligence, China accounted for less than 1% of US steel imports in the first two months of 2024.

Meanwhile, aluminum product manufacturers should be more cautious. Chinese aluminum exports to the US are mainly high-value-added products supplied by private companies and small and medium-sized enterprises. When US customers find alternatives, it will be difficult for them to regain market share.

According to Nomura, the new US tariff package will have a limited impact on Chinese exporters in the short term because the targeted products account for only 4.2% of total US imports from China and less than 1% of total exports from the country.

However, China’s exports could surge this year with products subject to tariffs in 2025 and 2026.

The more worrying impact is that other economies will follow suit with similar trade restrictions, particularly with the EU and the UK. “Increased trade tensions could hamper exports and encourage more supply chain relocation away from China in the long term,” Nomura’s analysis said.

Phien An (via Caixin, Nikkei, Reuters)