The White House has increased tariffs on a slew of Chinese imports predominantly targeting green technologies, including electric vehicles and solar panels, in a decision expected to deepen trade tensions with Beijing ahead of the US presidential election this fall.
The tariff hikes cover about $18 billion worth of imported goods from China against a US trade deficit that reached $280 billion in 2023. Along with batteries, semiconductors, and select raw materials, the aggregate amount accounts for 4% of US imports from China, and less than 1% of China’s total exports. Strangely, given the Covid-19 pandemic, they even apply to face masks.
Given the targeted industries, the tariff hikes are mostly a symbolic gesture, said Joseph Dahrieh, managing principal at Tickmill, a brokerage and financial service company, speaking to FinanceAsia.
“This announcement safeguards American manufacturers from China’s subsidised production but should be viewed as strategic positioning garnering blue-collar support before the presidential election,” Dahrieh explained.
While the sharp increases, such as quadrupling the tariff on Chinese-made electric vehicles to 100%, grabs market attention, the actual effectiveness may be more muted. According to the Center for Strategic & International Studies (CSIS), a Washington based think tank, fewer than 13,000 Chinese electric cars were on roads in the US in 2023, compared to nearly 300 million registered vehicles.
A similar case applies to Chinese solar cells, which will see tariffs double to 50%. Although the top ten solar cell manufacturers are based in mainland China, Chinese solar cells account for less than 1% of US imports.
“The administration is acting pre-emptively because it has seen this movie before,” wrote William Reinsch, a senior advisor and Scholl Chair in International Business at CSIS. He added: “China has dealt with its economic problems by attempting to export its way out of them rather than make needed internal reforms, and it appears that is happening again.”
A muted market impact, for now
Any imminent response creates a layer of ambiguity for investors. Meanwhile, Morgan Stanley views the direct shock to be fairly limited for China’s corporate earnings, as only 13% of MSCI China’s revenue is generated overseas with just 3% coming from the US. The total weight of affected stocks makes up less than 5% of the quoted index, according to the bank.
Analysts note that time lags mitigate the initial inflationary effect, such as tariff hikes for non-EV lithium-ion batteries taking place in 2026. But additional risks surrounding other trade policies or taxing transshipments, exports rerouted through a third country, remain unclear. This is particularly the case with Chinese electric vehicles targeting the European market, commented Mabrouk Chetouane, head of global market strategy, at Natixis Investment Managers, in response to FA.
Back in October, the European Commission launched an investigation into whether Chinese electric cars were receiving undue subsidies, and thus warranted extra import fees. Without a coordinated response, excess supply could find its way into Europe, forcing Brussels to implement policies that mimic Washington’s, feeding into higher consumer costs much sooner than anticipated, Tickmill’s Dahreigh said.
The bigger picture is how these responses influence supply chain investing going forward, said Andrew Pearson, founder and managing director of Intelligencia, a software consulting company that specialises in fintech and artificial intelligence (AI), speaking to FA.
“The Covid pandemic demonstrated the complex costs and slow materialisation of reshoring manufacturing, so it is more prudent that Chinese companies play a role in America’s green supply chain rather than being blocked out,” said Pearson, adding “a better policy is one that sets investment conditions and better labour standards than ineffective piecemeal tariffs, especially since many overlap the IRA (the Inflation Reduction Act passed in August 2022).”
Pearson added: “Why waste all the investments already spent by China to build out a world-class supply chain? The economies of scale will be there for a long time to come”, noting that data centres backing AI computation use will be a significant driver for future power demand.
Beijing’s response also remains unknown at this moment, warns Low Pei Han, an analyst at the Bank of Singapore. Given few good alternatives to China’s energy storage system, Low argues that Beijing may perhaps implement export controls on minerals and materials key for the energy transition for both the US and EU, hurting the clean climate initiatives all three countries share.
Valuations and equity risk premiums could be negatively impacted on any news flow surrounding tensions between Washington and Beijing, leaving investors susceptible to unpredictable market shocks just as the US heads into its presidential election campaign, before the vote takes place in early November.
