US tariff increases USA increases tariffs on China's EVs, semiconductors, solar cells, and more

On May 14, 2024, the US government announced it would increase tariffs on various Chinese tech exports. Products affected include semiconductors, steel products, electric vehicles, batteries and components, critical minerals, and solar cells. According to reports, the first Chinese electric vehicle manufacturers have already reacted and are shipping their vehicles.

Unsurprisingly, it is in the interest of any government to protect the domestic market from external influences. The aim is to promote the economy and protect jobs, to enhance economic independence, and to preserve strategically important industries. Measures to protect the domestic economy contribute to a country's economic, social, and political stability.

The protection of the domestic market has been a back-and-forth affair between the USA and China for years. If one party increases import costs on certain products, the other party usually follows suit shortly afterwards. Recently, reports circulated that the Chinese government is encouraging the country's economy and authorities to use domestic semiconductor products instead of importing technologies from Intel, Nvidia, and others. Another directive is also said to have been issued recently.

According to sources from Nikkei Asia, following the announcement of the forthcoming US tariff increases, reports have emerged that the Chinese Ministry of Industry and Information Technology has asked automakers like BYD and Dongfeng to increase local procurement of auto-related chips to 20 percent or 25 percent by 2025.

The US government announced on May 14, 2024, that it is raising tariffs on various Chinese tech exports. This affects, among other things, semiconductors, steel products, electric vehicles, batteries and parts, critical minerals, and solar cells. In response to these tariff increases, the first Chinese electric car manufacturers are reportedly already shipping their vehicles.

Tariff increases of up to 100 percent

Under a title that can best be translated as "President Biden takes action to protect American workers and businesses from China's unfair trade practices", the US government announced in May 2024 the increase of various import duties. The adjustments are justified as protection measures for the domestic economy and previous investments in establishing, for example, a self-contained semiconductor supply chain as follows:

"China's unfair trade practices regarding technology transfer, intellectual property, and innovation threaten American businesses and workers. In addition, China is flooding world markets with artificially cheap exports. In response to China's unfair trade practices and to counteract the resulting damages, President Biden is instructing his trade representative today to increase tariffs under Section 301 of the Trade Act of 1974 on imports from China worth $18 billion to protect American workers and businesses."

This translates into the following increases:

• The tariff rate on certain steel and aluminium products under Section 301 will be increased from 0 to 7.5% to 25% in 2024.

• The tariff rate for semiconductors will be increased from 25% to 50% by 2025.

• The tariff rate for electric vehicles under Section 301 will be increased from 25% to 100% in 2024.

• The tariff rate for lithium-ion EV batteries will be increased from 7.5% to 25% in 2024, while the tariff rate for non-EV lithium-ion batteries will be increased from 7.5% to 25% in 2026.

• The tariff rate for battery parts will be increased from 7.5% to 25% in 2024.

• The tariff rate for natural graphite and permanent magnets will be increased from zero to 25% in 2026. The tariff rate for certain other critical minerals will be increased from zero to 25% in 2024.

• The tariff rate for solar cells (regardless of whether they are assembled into modules or not) will be increased from 25% to 50% in 2024.

• The tariff rate for ship-to-shore cranes will be increased from 0% to 25% in 2024.

• The tariff rates for syringes and needles will be raised from 0% to 50% in 2024.

• The tariff rates for certain personal protective equipment (PPE), including certain respirators and face masks, will be raised from 0 to 7.5% to 25% in 2024.

• The tariffs on medical and surgical rubber gloves will increase from 7.5% to 25% in 2026.

Semiconductor: China dominates the market for legacy chips

"For some time now, analysts have agreed that Chinese chip manufacturers dominate the legacy market. As a result of trade restrictions on lithography technology and the export of US chips to China, combined with demand, investments within China are strongly focusing on new foundries for older generations of semiconductors in the 28 nanometer or larger range. 'The increase in the tariff rate for semiconductors is an important first step in promoting the sustainability of the investments [in domestic semiconductor production],' argues the U.S. government."

Electric vehicles to Mexico and Brazil

"Due to extensive subsidies and non-market practices leading to significant overcapacity, China's exports of electric vehicles rose by 70% between 2022 and 2023 - thus threatening productive investments in other countries. A tariff rate of 100% on electric vehicles will protect American manufacturers from China's unfair trade practices," it was announced from the White House.

Already since March 2024 and into June, some Chinese electric vehicle manufacturers, including BYD, have been massively shipping their vehicles to Mexico and Brazil, according to the authors of Nikkei Asia. BYD is already planning to build a factory in Mexico. The BYD officials announced a new model in Mexico just a few hours after the US government's tariff announcement. The Shark is a mid-sized hybrid electric pickup truck, which is currently available in Mexico, because there is enormous interest there.

According to a BYD spokesperson, the investments in Mexico are not pursuing strategies for the US market. However, in the long term, it is probably assumed that BYD will strengthen its position in the North American market with the Shark; a vehicle that is directly targeted at established manufacturers like Ford, General Motors and Toyota.

Solar cell boom in the USA

The increase in tariffs on Chinese solar cells and modules was foreseeable. "China has dominated 80 to 90% of certain parts of the global solar supply chain through unfair practices and is trying to maintain this status quo. Chinese policy and non-market practices flood global markets with artificially cheap solar modules and panels and undermine investments in solar production outside of China," says the Biden administration.

The demand for solar cells is increasing in the USA, which is why the manufacturer Meyer Burger is now focusing on the US business, while the site in Freiberg, Saxony is being closed. It is to be assumed that companies in this country will have mixed feelings about the increase in US import tariffs on solar cells and modules. Just in March 2024, the German government had rejected a proposal to support the domestic PV industry.

ZVEI calls for protection from the EU

Wolfgang Weber, Chairman of the ZVEI Management Board, comments on the decision from the USA to raise tariffs on certain products by warning that the EU must protect itself from heavily subsidized Chinese products flooding the European market. "The EU must protect itself from this and should not shy away from sanctions if unjustified subsidies are in place. Therefore, the EU should now once again make it unequivocally clear to China what is necessary: reciprocity in economic relations with equal market access conditions." (sb)