Caixin Explains: How Will the U.S. Import Tariff Hikes Impact Chinese Industries?

The Biden Administration has declared an increase in tariffs on $18 billion of Chinese imports in sectors including electric vehicles (EVs), semiconductors, lithium-ion batteries, and steel [para. 1]. This decision is part of a broader strategy to protect US manufacturers from being undercut by Chinese competitors, potentially placing American jobs at risk [para. 2]. The additional tariffs may exacerbate the tensions between the two largest global economies, with China’s Ministry of Commerce expressing strong opposition and promising to take measures to protect Chinese businesses [para. 3].

Some analysts believe these tariff hikes are largely symbolic and may be aimed at gaining voter support during an election year. President Biden stated in April that while he was not seeking conflict with China, it was necessary to address Beijing’s “unfair economic practices and industrial overcapacity” [para. 4]. The tariff hikes are set to impact various Chinese sectors differently [para. 5].

For the EV sector, tariffs will increase from 25% to 100% [para. 9]. Analysts at Nomura Holdings Inc. predict a limited near-term impact since the US only accounts for 1% of China’s EV exports [para. 10]. However, the situation could worsen for Chinese EV makers if the EU and the UK also impose similar tariffs [para. 12]. The European Commission is already investigating whether Chinese EV firms benefit from unfair subsidies, potentially leading to tariffs imposed by Brussels [para. 13].

In the area of lithium-ion batteries, tariffs on EV batteries and parts will rise to 25% from 7.5% this year, with similar hikes for non-EV batteries planned for 2026 [para. 20][para. 21]. This may adversely affect Chinese exporters, although it could benefit Chinese battery companies planning to build facilities in the US. [para. 22]. The impact will become more pronounced by 2026, as the cost advantages of Chinese battery storage exporters might diminish compared with US companies benefiting from tax breaks under the Inflation Reduction Act [para. 25].

For natural graphite, the tariffs will increase to 25% in 2026, up from zero [para. 26]. Gracelin Baskaran from CSIS notes that the US has an insufficient supply of non-Chinese graphite, vital for domestic EV production, given that China controls about 90% of the global graphite supply [para. 30][para. 31]. Increased costs could make EVs less affordable, potentially harming the domestic auto industry [para. 32].

Tariffs on rare-earth magnets will also jump to 25% by 2026. This move aims to protect US industries and reduce dependency on Chinese imports, though it was unexpected due to the current lack of competitive US capabilities in this domain [para. 33][para. 35]. China leads the world in rare earth production, with a significant 68% market share [para. 39].

For semiconductors, tariffs will increase to 50% by 2025. This comes as the Biden administration invests nearly $53 billion in the American semiconductor sector. The tariff could disrupt China’s chipmaking ecosystem, but Chinese chipmakers may attempt to mitigate this by integrating their chips into finished products [para. 40][para. 41]. A report from the Peterson Institute suggests that Chinese manufacturers of mainstream semiconductors are irreplaceable due to a lack of competition from Taiwanese and South Korean firms focused on high-end chips [para. 43].

Similarly, tariff hikes are planned for solar cells, doubling to 50% this year. Analysts predict limited near-term impacts as Chinese solar-panel makers have already moved their supply chains to Southeast Asia to avoid US restrictions. The majority of US solar imports now come from countries like Malaysia and Vietnam [para. 44][para. 45].

For medical devices, tariffs on certain PPE and medical items will significantly increase [para. 47][para. 48]. However, the impact may be limited as many manufacturers have shifted to other industries following a drop in demand post-pandemic [para. 55].

The tariff on ship-to-shore cranes will rise to 25% from zero in 2024 to protect US manufacturers. This move follows concerns from US defense officials about potential espionage risks from Chinese-made cranes [para. 59][para. 62].

In terms of overall impact, analysts believe these tariffs will have a limited immediate effect on Chinese exports due to their minimal share in total US imports [para. 69]. However, there could be a spike in exports before higher tariffs are applied [para. 70]. The biggest risk is that other regions, particularly the EU and UK, might introduce similar trade-restrictive measures, potentially leading to longer-term adverse effects on China’s export sector [para. 72].