“Purely protectionist”: US anti-China tariffs are becoming a German problem

The USA wants to protect itself from cheap Chinese imports with punitive tariffs. Washington’s isolation policy is causing alarm in Brussels: Europe is still arguing about its stance on imports from China and fears negative diversion effects.

The US-Chinese trade dispute is sparking a new level of escalation that could also affect Europe’s industry. President Joe Biden on Tuesday imposed new tariffs on imports from the People’s Republic worth an estimated $18 billion, the White House said. In order to protect the domestic economy, semiconductors, batteries, solar cells and strategically important minerals in particular should be subject to greater pollution in the election year. There are also taxes on harbor cranes and some medical products. Increased tariffs on steel, aluminum and especially on electric cars had already been announced previously.

For the first time, the US government is comprehensively tightening the trade restrictions introduced by Biden’s predecessor Donald Trump – especially given that a tough stance towards Beijing is popular with US voters. In parallel to the official announcement, new investments in infrastructure and future technologies will also be announced.

The new rules on trade with China will come into force gradually from 2024 to 2026. The defensive tariffs on electric cars will rise the most – they will quadruple to 102.5 percent in the current year. Other tariffs double to 50 percent, such as those for chips or solar cells. Others are being collected for the first time, for example on certain ores. Tariffs on lithium-ion batteries and battery parts triple to 25 percent.

“China is simply too big to play by its own rules,” the economic information service Bloomberg quoted Biden’s economic advisor Lael Brainard as saying. “China is following its playbook of strengthening its domestic economy at the expense of others by continuing to invest despite excess capacity and flooding global markets with exports that are far too cheap due to unfair economic practices.”

Chinese are moving into the EU

US Treasury Secretary Janet Yellen had previously recalled that the US had already suffered from a glut of cheap Chinese goods. We “will not tolerate something like this anymore,” she said in an interview, referring to a wave of bankruptcies in US industry and the loss of millions of jobs in the 2000s.

While the USA is increasingly sealing off its market, concerns about dangerous diversion effects are growing in Europe. The chairman of the trade committee in the European Parliament, Bernd Lange (SPD), described the new 100 percent US tariff on Chinese electric cars as “purely protectionist”. The higher trade barriers could increase pressure on European companies as Chinese exporters increasingly turn to the EU market. The Association of Mechanical Engineers (VDMA) also fears such an effect.

While in fact hardly any Chinese electric cars are sold in the USA – and therefore do not need to be redirected – the IW economic institute in Cologne reports that Chinese competing products are already on the market in practically all German industrial sectors and are sold at prices far below would be offered at normal market levels. A study by the credit insurer Allianz Trade warned in April that Germany was particularly at risk from Chinese competitors. The industry is losing ground in more and more key sectors that once dominated China. When it comes to machinery, chemicals and electrical equipment, Chinese exporters are now more successful on the world market than German ones.

“Even in Europe, the classic ‘home turf’ of German companies, Chinese companies are increasingly gaining market share,” explained Jasmin Gröschl, European economist at Allianz Trade. “Within the European Union (EU), ten out of eleven sectors of the German manufacturing industry have recorded a decline in export market share over the last ten years.”

Xi relies on “Made in China”

Chinese President Xi Jinping, on the other hand, denied during his recent visit to Europe that the continent was threatened with a China shock. He brushed aside concerns about an export offensive and attributed Chinese successes to the superior competitiveness of domestic companies. China does not have any problems with overcapacity, he said in Paris. Since 2015, Xi has been pursuing a “Made in China” strategy that is intended to make the country an international leader in several core technologies, including the chip and electric car industries. These industries are subsidized accordingly.

As a study by IfW Kiel shows, more than 99 percent of listed companies received direct government subsidies in 2022. This would specifically bring key technologies to market maturity. Combined with preferential access to critical raw materials, technology transfer partly forced by foreign investors and preferential treatment in public procurement procedures, Chinese companies were able to expand very quickly in many green technologies. It is said that they dominate the domestic market and are increasingly penetrating EU markets.

In addition to being the world market leader in photovoltaic systems and battery cells, China is obviously also aiming for leadership in electric vehicles and wind turbines, according to the IfW. With domestic demand weakening, Chinese companies are now pushing into global markets, where they often offer their products at very low prices. By 2025, China’s battery makers will reach production capacity that could meet global demand three times, according to Bloomberg data. Exports of Chinese electric cars are increasing rapidly, including to Europe. According to reports, the shipping fleets for producers such as BYD, Chery and Saic are to be more than doubled from the current 33 electric car transporters.

The EU Commission also found in a report in April that Beijing is actively promoting overcapacity for exports in order to make greater use of domestic production capacities. The situation with batteries is similar to that of electric cars.

EU launches investigation

The Kiel economists advise the European Union to negotiate with Beijing as part of the anti-subsidy process against Chinese imports of electric vehicles. The aim must be to abolish subsidies that are particularly harmful to the EU. Given China’s current macroeconomic weakness, its relative strength in green technology sectors and its tensions with the US, the authors see a realistic chance that such negotiations could be successful.

The EU Commission can take action against unfair practices in international trade with anti-dumping or anti-subsidy tariffs. Corresponding investigations into possible illegal subsidies have already been started. Brussels was one of the first sectors to target Chinese electric cars. The situation could soon come to a head here: a decision deadline expires at the end of July. Possible punitive tariffs could affect individual manufacturers if they have proven to have received aid that distorts competition. The Commission must also take into account the damage that has been or would be caused to the domestic economy.

In mid-April, EU Competition Commissioner Margrethe Vestager announced an investigation into Chinese wind turbine manufacturers. This involves planned wind farms in Spain, Greece, France, Romania and Bulgaria.

EU trade expert Lange considers various unfair practices to be clear: including in state-owned companies, through subsidies and dumping (artificially low prices), as well as through state-controlled supply chains of raw materials and refineries. “A large part of the EU anti-dumping and anti-subsidy measures are directed against China.” The EU is anything but inactive.

From reactive to proactive

This is evidenced by a “systematic and strategic realignment” of the European toolbox in favor of fair world trade – from reactive to proactive. The Commission will now take action ex-officio – without specific complaints – if there is enough evidence of distortions of competition. The law to combat commercial coercion was introduced for this purpose, says Lange. Another milestone: the regulation on foreign subsidies and fairness in public procurement by foreign companies.

This made it possible to examine a procurement procedure in Bulgaria, which was initiated in February. The Chinese CRRC Quingdao Sifang Locomotive company was involved in the tender. An investigation began in April into two companies from the People’s Republic that applied for a contract to build a large solar park in Romania. Brussels also launched an investigation into the medical devices sector in April against discrimination against EU manufacturers in China’s procurement market.

However, interests differ widely among the EU member states when it comes to punitive measures against distortions of competition by China. While French President Emmanuel Macron supports tariffs as an antidote, Chancellor Olaf Scholz has expressed skepticism and even rejection in the past. During his visit to China in April, he spoke out in favor of open car markets with fair competition conditions.

On Tuesday, during a visit to Sweden, he pointed out that currently half of the electric cars from China come from Western brands that produce locally and then ship the vehicles to Europe. These include the electric Mini and the iX3 from BMW or the Tesla Model3. In addition, Scholz emphasized, many European manufacturers were successfully selling their vehicles on the Chinese market. Federal Transport Minister Volker Wissing also rejects punitive tariffs against Chinese vehicles.

From the auto industry, BMW boss Oliver Zipse warned of countermeasures from the Chinese side that were not taken into account. For example, the government in Beijing could ensure that important raw materials for electric cars would become scarce. It should also be borne in mind that the European market has not yet been flooded with cheap Chinese vehicles.

This text first appeared at capital.de

source site-32