[Global Focus] The Wave of Protectionism Sweeping the World with '100% Tariffs'

US Imposes 'Bomb Tariffs' Targeting China's Strategic Industries
'Protectionist Trade' Domino Inevitable... EU and G7 "Reviewing"
IMF "7% of Global GDP Evaporates"

The United States has decided to significantly increase tariffs targeting China's strategic industries such as electric vehicles and semiconductors. It also raised the agenda of banning Chinese connected vehicles and halting transactions with bio companies. That's not all. Western pressure aimed at curbing China's overproduction is expanding to the European Union (EU) as well. China, which has implemented retaliatory measures against U.S. sanctions, is expected to counterattack. The U.S.-originated tariff hike movement is triggering a 'domino' effect that strengthens protectionist trends worldwide.

The Biden administration raised tariffs on Chinese electric vehicles from the current 25% to 100%, a fourfold increase, on the 14th. Tariffs on steel, aluminum, and lithium-ion batteries for electric vehicles were raised from 7.5% to 25%, and tariffs on semiconductors and solar cells were sharply increased from 25% to 50%.

The White House stated that this directive was issued under Section 301 of the Trade Act to respond to China's unfair trade practices and the resulting damages. Regarding the tariffs, the White House explained, "They are carefully targeted in strategic sectors," adding, "Rather than undermining allies or indiscriminately imposing a 10% tariff on products imported from all countries, we will strengthen cooperation with global allies to address concerns about China's unfair practices."

Biden Becomes 'Tariff Man' Following Trump... Trade War Regardless of Who Leads

So far, the trade war was seen mainly as a concern related to the possible return of former President Donald Trump, the Republican presidential candidate, to the White House. Trump initiated the U.S.-China trade war during his term and recently stated multiple times that he would impose tariffs exceeding 60% on Chinese imports.

However, as the competition between President Biden and former President Trump intensifies in the U.S. presidential race, a trade confrontation is inevitable regardless of who wins. Rick Newman, senior columnist at Yahoo Finance, said, "President Biden has now joined former President Trump as a 'tariff man'." Initially concerned about inflation and intending to adjust the high tariffs imposed by the Trump administration, President Biden has suddenly taken a hard stance against China. Following export controls on advanced technologies, he is now imposing high tariffs.

President Joe Biden [Photo by Yonhap News]

China is strongly opposing the U.S. high tariffs, claiming they violate World Trade Organization (WTO) rules. According to China Central Television (CCTV), Wang Yi, Director of the Central Foreign Affairs Office of the Chinese Communist Party (also serving as Foreign Minister), criticized at a press conference on the 15th, saying, "It is close to a mad suppression of China's normal economic, trade, scientific, and technological activities," and "Some U.S. officials have lost reason in order to maintain their unipolar hegemony." There is a strong expectation that China will take retaliatory measures.

China Stimulates Economy Through 'Overproduction'

The U.S. and Europe point out that China supports products such as electric vehicles and steel with massive subsidies and exports them at low prices to the global market by producing more than domestic demand. According to a Wall Street Journal (WSJ) report citing Automobility and the China Passenger Car Association, China produces 40 million vehicles annually, but only 22 million are consumed in the domestic market. Amid the fierce U.S.-China hegemonic rivalry, China is fostering advanced industries to seize the market and create jobs to stimulate the sluggish economy.

Taking the electric vehicle industry, which the U.S. imposes a 100% tariff on, as an example, the Chinese government is providing full support, even reviving companies that once went bankrupt. According to Scott Kennedy, a researcher at the U.S. Center for Strategic and International Studies (CSIS), China provided subsidies amounting to $173 billion for new energy vehicles such as electric and hybrid cars from 2009 to 2022. In addition, China offers comprehensive support including low-interest loans and discounts on raw materials like steel and batteries.

Beyond U.S.-China Rivalry: Global 'Protectionism' Domino Effect

The U.S. tariff imposition on China is unlikely to end as a mere hegemonic confrontation between the two countries. Since the White House has announced that global allies will join in imposing tariffs on China, it could trigger a domino effect of protectionism.

Other countries' participation in raising tariffs on China is inevitable. As long as China continues its overproduction strategy, lowering the competitiveness of cheap Chinese products through U.S. tariffs will not eliminate the oversupplied goods. China will target other markets instead. Joseph Webster, senior fellow at the Atlantic Council, said about the U.S. tariffs, "The EU will have to act quickly either by imposing its own tariffs or by accommodating the flood of Chinese products."

Movements to consider high tariffs have already been detected in Europe and the Group of Seven (G7) countries. Italian Finance Minister Giancarlo Giorgetti argued on the 14th that since the U.S. decided to impose high tariffs, Europe should also use tariffs in response. Minister Giorgetti plans to discuss this issue at the G7 Finance Ministers' meeting scheduled for the 24th-25th in Italy.

The European Union (EU) Commission has been taking various trade measures since last year, concerned about China's overproduction. A representative case is the anti-subsidy investigation on Chinese electric vehicles launched in October last year. On the 16th, following a complaint from the European Steel Association (Eurofer), the EU initiated an anti-dumping investigation on Chinese tin-plated steel sheets (tinplate steel). Regarding the U.S. tariff increase on Chinese products on the 15th, the EU Commission stated, "The EU shares the same concerns and is responding using our tools within WTO rules."

There are forecasts that China's circumvention exports through third countries with tariff agreements with the U.S. will increase. China's top electric vehicle company BYD has already begun scouting for factory sites in Mexico, seeking detours. In response, the U.S. has started preparing follow-up measures to prevent tariff evasion. On the 16th, White House National Economic Council Director Lael Brainard announced plans to review the United States-Mexico-Canada Agreement (USMCA) to block China's circumvention exports. Regarding solar panels, the temporary tariff exemption for four Southeast Asian countries will end next month.

Global Economic Impact Inevitable... IMF Warns "7% of World GDP Evaporates"

The International Monetary Fund (IMF) warned that trade conflicts between the U.S. and China threaten global trade cooperation and economic growth. According to the IMF, if geopolitical blocs form and global economic trade fragmentation peaks, about 7% of the world's gross domestic product (GDP) would be lost. This loss is equivalent to the combined GDP of Japan and Germany disappearing. IMF Deputy Managing Director Gita Gopinath explained, "Restricting trade reduces efficiency gains from specialization, limits economies of scale, reduces competition, and also incurs costs from financial fragmentation."

In recent years, global trade conflicts have deepened. According to the IMF, the number of trade restrictive measures worldwide was about 1,000 in 2019 but surged to around 3,000 in 2023, tripling. Especially after the Russia-Ukraine war, trade within the U.S. camp (Europe, Canada, Australia, New Zealand, etc.) and the China camp (Russia, Eritrea, Mali, Nicaragua, Syria, etc.) decreased by 12% compared to intra-bloc trade, and foreign direct investment dropped by 20%.

Moreover, as major countries like the U.S. and EU wage war against soaring inflation, there are concerns that tariffs could fuel inflation since the costs are passed on to consumers through prices.

However, with the U.S.-China confrontation intensifying, the protectionist trend is expected to continue. While Europe is also considering the tariff card, the U.S. plans to raise the level of sanctions on China's advanced industries. The U.S. has announced plans to introduce regulations on Chinese connected vehicles this fall. In the U.S. House of Representatives, a bill has been submitted to increase tariffs on Chinese drones by 30%.