China’s response to EV tariffs may be driven by EU indicators

When Joe Biden announced steep new tariffs on Chinese electric vehicles (EV) and a range of other products on Tuesday, Beijing’s reaction was immediate and predictable. Its commerce ministry said the president’s decision was driven by political considerations during an election year and foreign minister Wang Yi described the action as a typical case of hegemonism and bullying.

“It seems that some in the United States have lost reason in a quest to ensure US unipolar supremacy. Taking unscrupulous actions against China does not prove the strength of the United States, but only reveals that the United States has lost confidence and direction,” Wang said.

“Unilateralism and protectionism go against the trend of the times and are bound to be crushed by the wheels of history. At this crucial moment for the global economic recovery, the international community needs to tell the United States: stop making more trouble for the world.”

But despite a warning that it would take resolute measures to defend its own rights and interests, Beijing has yet to announce reciprocal measures targeting American imports. One reason for this reticence may be that the tariff increases came as no surprise because US officials briefed their Chinese counterparts about them in advance.

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Another explanation might lie in the fact that most of the measures, while headline-grabbing, will have limited impact on Chinese exporters. Even the most dramatic announcement, quadrupling the tariff on EVs to 100 per cent, will have little immediate effect because China exports so few such vehicles to the US.

The “flood” of cheap EVs from China feared by US policymakers is so far no more than a dribble, with just 12,362 exported last year, according to Centre for Strategic and International Studies (CSIS). This amounts to about 1 per cent of the total number of EVs exported from China last year.

[ The economic war between the US and China will cause problems for Ireland ]

Biden’s rationale for imposing prohibitive tariffs on Chinese EVs is to give American major car manufacturers time to become more competitive in the sector. Policymakers are haunted by the memory of the “China shock” of the 2000s when cheap Chinese imports helped to eliminate an estimated two million American industrial jobs.

Biden is also hiking tariffs on Chinese lithium-ion batteries, natural graphite, rare earths, semiconductors, solar cells and medical devices such as syringes, respirators and face masks. Some of the increases are being deferred until 2026 because the US cannot source enough natural graphite and rare earths to produce its own green technology products from anywhere other than China.

Beijing’s traditional response to trade protection measures such as tariffs has been to complain loudly but to take little action. This changed after Donald Trump imposed a raft of tariffs and China retaliated against each one.

The likely economic and diplomatic cost of a new trade war with the US could be enough to persuade Beijing to exercise restraint this time. Relations with Washington have seen a marked improvement since Biden’s meeting with Xi Jinping in San Francisco last November and Chinese policymakers understand the dynamics of American electoral politics.

If China does retaliate against Biden’s tariffs, it will be in large part out of an anxiety that other trading partners such as the European Union might be tempted to follow the US playbook. The European Commission has already launched an investigation into China’s subsidies for the EV sector and a number of member states share US fears about the impact of a second China shock.

Beijing hopes that those member states whose manufacturers depend heavily on access to the Chinese market, notably Germany, will moderate any EU action. But a report last week by the European Chamber of Commerce in China found that companies are losing patience with Beijing’s failure to offer a level playing field to address the imbalance in trade.

[ Ireland increasingly seen by China as a bridge to the EU ]

“There are worrying signs that some European companies are either siloing operations or scaling down their ambitions in China as the challenges they face start to outweigh the benefits of being here,” the chamber’s president Jens Eskelund said.

European companies are finding it increasingly difficult to recruit and retain foreign staff in China and Eskelund believes that a change in perception is partly to blame.

“Fifteen years ago, if you wanted to have a C-suite position at the head office, it was really good to have a China experience on your CV,” he said.

“That unfortunately has changed a little bit. There’s not at all the same buzz around China. And if you have less interest amongst populations and declining perceptions of China, that’s also going to affect the number of people that would seek to come to China. I think the relationship between Europe and China is a little bit in flux right now.”

[ How did China build a children’s hospital six times cheaper than Ireland in just three years? ]