Andy Xie

Opinion | China must respond to Biden’s new tariffs with an eye on Europe

China has a much better chance of nudging the European Union on free trade. Beijing should hit US cars with stiff tariffs to send a warning signal to Brussels

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Employees work on the assembly line of new energy vehicles at a factory of Chinese EV startup Leapmotor on April 1 in Jinhua in China’s Zhejiang province. The Biden administration has announced an increase in tariffs on Chinese electric vehicle imports to 100 per cent. Photo: VCG/ Getty Images

Andy Xie

Published: 8:30pm, 22 May 2024Updated: 9:32pm, 22 May 2024

China’s main interest is preserving the system of world trade. It is the largest trading economy by far and its future depends on its trade success. A tit-for-tat trade war with the United States spiralling out of control brings no advantage to China.

Thus, in responding to US President Joe Biden’s new tariffs on Chinese imports, Beijing’s chief objective should be to deter the European Union from following suit. Slapping 100 per cent tariffs on US car imports, which are worth about US$5 billion, should do the trick.

The Biden administration announced stiff tariffs on Chinese semiconductors, solar cells and electric vehicles, even though the US hardly imports EVs from China. Clearly, Biden intends to win support among unions and voters in swing states such as Michigan and Pennsylvania, which are closely associated with the car industry, ahead of the US presidential election in November. At the same time, the new tariffs don’t apply to the internal-combustion-engine cars that US companies manufacture and import from China; evidently, Biden wouldn’t want to upset the carmakers either.

In theory, Chinese carmakers can still export their own combustion-engine cars to the US. But the US Department of Commerce is likely to close this loophole with its investigation into possible security risks posed by “connected vehicles” from China that use hi-tech software and sensors. New US restrictions could then be defined fuzzily so as to be interpreted to apply only to Chinese companies.

To put it another way: Washington doesn’t have a problem with cars produced in Chinese plants for the US market if they are being imported by American carmakers. When the day comes that US companies want to import EVs from China too, you can bet the US government will find a way to accommodate that.

Biden’s other tariffs, such as those on Chinese semiconductors and solar cells, complement the subsidies and tax credits offered by the Chips and Science Act and the Inflation Reduction Act. Yet, the gap between green tech production costs in China and the US is not only vast but it is widening.