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On May 14, President Joe Biden directed the Office of the U.S. Trade Representative (USTR) to add or increase tariffs on a range of goods originating from China, including electric vehicles (EVs), EV batteries, battery parts, semiconductors, solar cells, permanent magnets, and certain steel and aluminum products. Critical minerals and medical supplies were also on the list.
The move was driven by China’s unfair trade practices concerning technology transfer, intellectual property and innovation, the White House says, all of which are threatening American businesses and workers. “China is also flooding global markets with artificially low-priced exports,” it adds. The new tariffs are being enacted under Section 301 of the Trade Act of 1974 and will impact about $18 billion of imports from China.
A Cross-Section of Industries
The tariffs will impact sectors like steel and aluminum, semiconductors, EVs, batteries, critical minerals, solar cells, ship-to-shore cranes and medical products. Some of the major new or increased tariffs include:
- Steel and aluminum. The tariff rate on certain steel and aluminum products under Section 301 will increase from 0–7.5% to 25% in 2024.
- Semiconductors. The tariff rate on semiconductors will increase from 25% to 50% by 2025. “Over the next three to five years, China is expected to account for almost half of all new capacity coming online to manufacture certain legacy semiconductor wafers,” the White House says. “During the pandemic, disruptions to the supply chain, including legacy chips, led to price spikes in a wide variety of products, including automobiles, consumer appliances, and medical devices, underscoring the risks of overreliance on a few markets.”
- Electric vehicles. The tariff rate on electric vehicles under Section 301 will increase from 25% to 100% in 2024. With extensive subsidies and non-market practices leading to substantial risks of overcapacity, China’s exports of EVs grew by 70% from 2022 to 2023—jeopardizing productive investments elsewhere. “A 100% tariff rate on EVs will protect American manufacturers from China’s unfair trade practices,” the White House explains.
- Batteries, battery components and parts and critical minerals. The tariff rate on lithium-ion EV batteries will increase from 7.5%% to 25% in 2024, while the tariff rate on lithium-ion non-EV batteries will increase from 7.5% to 25% in 2026. The tariff rate on battery parts will increase from 7.5% to 25% in 2024. The tariff rate on natural graphite and permanent magnets will increase from zero to 25% in 2026. The tariff rate for certain other critical minerals will increase from zero to 25% in 2024.
- Solar cells. The tariff rate on solar cells (whether or not assembled into modules) will increase from 25% to 50% in 2024. The White House says this particular tariff increase will “protect against China’s policy-driven overcapacity that depresses prices and inhibits the development of solar capacity outside of China.” It says China has used unfair practices to dominate upwards of 80 to 90% of certain parts of the global solar supply chain, and is trying to maintain that status quo.
What’s Next?
The tariff announcement was met with mixed reviews and the potential for retaliatory tariffs on China’s part. Skadden says the announcement will “come as a disappointment” to some U.S. importers, given previous speculation that the review might yield targeted reduction of Section 301 rates or the elimination of certain tariff lines.
“Instead, all existing Section 301 tariffs have been either maintained at their current levels or increased, and certain products are now subject to Section 301 tariffs for the first time,” it adds. “No tariffs were reduced or eliminated.”
The tariff increases may also prompt retaliation on China’s part. According to Business Standard, China may raise tariffs on some U.S.- and EU-made cars by up to 25%.
