[Why&Next] US-China Second Tariff War Opens... Domino Tariff Increase Feared Due to 'China Pushout'

Biden Imposes Heavy Tariffs on Chinese Electric Vehicles
US Imports from China Account for Only 4%...Core Mineral Tariffs Deferred
China Pushes Oversupplied Goods Blocked from US Exports
EU Joins in Raising Tariffs on China, Raising Inflation Concerns

The tariff war between the United States and China has intensified. The Biden administration has opened the door to a second trade war following the Trump administration by imposing a 'tariff bomb' on Chinese electric vehicles, semiconductors, and other products ahead of the November presidential election. Analysts widely agree that the Biden administration's tariff hikes targeting China are preemptively and selectively aimed at strategic industries planning to enter the U.S. market, and the scale of Chinese imports affected is relatively small, making this a symbolic move ahead of the election.

However, if China's oversupplied products blocked from exporting to the U.S. head to other regions such as the European Union (EU), it is expected that countries worldwide will competitively build tariff barriers against China, increasing uncertainty surrounding the global trade environment. As protectionism spreads globally, concerns are also growing that this could disrupt global supply chains and fuel inflation.

U.S. Tariff Increase Accounts for Only 4% of Total Chinese Imports... Tariff Introduction on Critical Minerals Deferred

On the 14th (local time), the White House directed the U.S. Trade Representative (USTR) to raise tariffs on key strategic industries based on Section 301 of the Trade Act, citing China's unfair trade practices. Tariffs will be increased from 2024 to 2026 on major items such as Chinese electric vehicles (25%→100%), steel and aluminum (0~7.5%→25%), semiconductors (25%→50%), lithium-ion electric vehicle batteries (7.5%→25%), and solar cells (25%→50%). President Biden also formalized the tariff hike policy in a White House speech the day before, stating, "China is not competing fairly but engaging in unfair practices," and vowed, "We will ensure that such actions never happen again."

The Chinese imports affected by this tariff increase amount to $18 billion based on last year's figures. This accounts for only 4.2% of the total $427 billion worth of Chinese imports into the U.S. Compared to the Trump administration's 2018-2019 tariffs of 10-25% on $300 billion worth of Chinese imports, this is a significantly smaller scale. Even looking at the electric vehicles, whose tariffs were quadrupled, they represent only 2% of the total U.S. electric vehicle imports (including hybrids). Ultimately, this appears less about targeting current Chinese industries and more about restricting future market entry by Chinese companies. It is interpreted as a symbolic move aimed at protecting domestic industries to gain voter support ahead of the election.

The White House also granted grace periods for tariff increases on items that could directly impact U.S. industries. While tariffs on electric vehicles will rise to 100% starting in 2024, the introduction and increase of tariffs on critical minerals and materials for electric vehicle batteries, which China controls in the supply chain, will be implemented starting in 2026. Tariff hikes on natural graphite and permanent magnets (0%→25%) and lithium-ion non-electric vehicle batteries (7.5%→25%) will also begin in 2026. Natural graphite is a key material for electric vehicle batteries, with China monopolizing 90% of global supply. In contrast, the U.S. holds less than 1% of natural graphite reserves. Recently, the U.S. Treasury Department decided to provide subsidies for two years for electric vehicles equipped with batteries made from Chinese graphite under the Inflation Reduction Act (IRA) regulations concerning Foreign Entities of Concern (FEOC), reflecting the high dependency on China. Grace Lin Vaskaran, a senior researcher at the U.S. think tank Center for Strategic and International Studies (CSIS), analyzed, "Considering China's decades-long dominance in the graphite sector, the Biden administration has acknowledged structural sourcing limitations."

China's Oversupplied Products Blocked from U.S. Exports Could Be Pushed to Other Markets... Concerns Over Worsening Global Trade and Inflation

China immediately protested the U.S. tariff hikes, and markets are closely watching Beijing's response level. Wang Yi, China's foreign minister, criticized the U.S. tariff increase on China as "irrational," stating, "For some time, the U.S. has frequently imposed unilateral sanctions on China and abused Section 301 tariffs, severely suppressing China's normal economic, trade, scientific, and technological activities." While possibilities such as China's retaliatory tariffs or World Trade Organization (WTO) complaints, similar to the Trump administration era, are being discussed, the prevailing view is that there will not be full-scale retaliation or an escalation of conflict between the two countries. Ye Han-gu, a senior fellow at the Peterson Institute for International Economics (PIIE) and former head of trade negotiations at South Korea's Ministry of Trade, Industry and Energy, said, "The current tariff hikes do not cause substantial damage to Chinese industries and are quite limited in scope. Given China's economic difficulties and severe foreign investor outflows, it is expected that China will respond symbolically rather than with full retaliation."

The variable is that China might push oversupplied products blocked from exporting to the U.S. to other countries such as the EU, South Korea, and Japan at low prices, potentially worsening the global trade environment. Ye warned, "If China pushes oversupplied products to other regions, industrial damage could spill over to other countries," and predicted, "Trade remedy measures such as anti-dumping and countervailing duties on Chinese imports could spread in regions like the EU." He emphasized, "South Korea should also prepare in advance by considering trade remedy measures."

The EU is already considering significantly raising tariffs on Chinese electric vehicles from the current 10%. The U.S. move is likely to accelerate the EU's tariff hikes on Chinese electric vehicles. The U.S. has also warned of additional measures to counter potential Chinese export expansion to the U.S. via bypass routes such as Mexico and Vietnam. Katherine Tai, USTR representative, stated, "China's expansion of business in Mexico is a serious concern," and added, "USTR is reviewing all tools to see if it can address the issue." This indicates that the U.S. tariff hike movement could spread comprehensively.

The worsening trade environment caused by the spread of protectionism could also lead to disruptions in global supply chains and rising prices, which cannot be completely ruled out. Joseph Maiukut, director at CSIS, pointed out, "The sharp decline in costs for electric vehicles, solar panels, and battery storage devices has mostly been due to production in China," and warned, "The Biden administration's new tariff measures could increase costs."

George Calhoun, director at Stevens Institute of Technology, said, "Mechanically, adding tariffs to imports and consumers purchasing those imports will inevitably raise costs," and added, "The government may want to claim there is no impact on inflation, but this measure certainly has potential inflationary effects. It contradicts the Biden administration's policy to demonstrate real progress on inflation."