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Important news about money and politics in the race for the White House
With six months until the presidential election, Joe Biden signaled this week that he is prepared to further stake America’s long-standing supremacy in free trade to prevent Donald Trump from returning to the White House. . On Tuesday, his administration launched a series of protectionist measures aimed at currying blue-collar workers and fostering America’s industrial base. This includes quadrupling the tariff rate on China’s electric vehicle imports, doubling the tax on solar cells, and more than tripling the fee on China’s lithium-ion EV batteries. The political benefits are unclear at this stage. But for America and the world, it will likely do more harm than good.
Mr. Biden’s $18 billion in tariffs on Chinese goods builds on the $300 billion imposed under the Trump administration. The new 100% tax on EVs will hurt more than hurt, since the US only imports 2% from China. But the tariffs will raise costs for battery makers that are already struggling to keep up with expenses. Other manufacturers will be stymied by rising input costs. In the long run, the tariff ratchet insulates U.S. industry from competition, hinders innovation, and increases costs for consumers. That’s before you factor in retaliation from China, which controls supply chains vital to the U.S. economy.
The administration will argue that heavily subsidized Chinese exports are a threat to efforts to foster U.S.-made green strategic technologies under the Inflation Control Act and the Chips Act. There is some logic to that, but blanketing tariffs is not the answer.
First, investments under the IRA and Biden’s Chip Act aimed at expanding U.S. semiconductor production are also being held back by skills shortages, lengthy permitting procedures, and political uncertainty. Second, global supply chains are known for being agile. Following early U.S. efforts to block cheap solar panels, some Chinese companies began rerouting their panels through Southeast Asia. This raises questions about how thorough the United States is in regulating lightly processed Chinese products that are transshipped from third countries.
Unfortunately, that political logic may also push the U.S. government to impose further tariffs. President Trump has already said he intends to impose a 200 percent tariff on Chinese-made cars made in Mexico. Biden’s move puts pressure on Europe to follow suit to avoid facing a flood of redirected Chinese goods. This could potentially spread the negative effects of tariffs even more broadly.
This measure will be a blow to the green transition not only domestically but also potentially internationally. With household budgets already strained by high living costs, lower prices for EVs and solar panels now seem like a missed opportunity.
When it comes to concerns about unfair trade and national security risks, Mr. Biden could have laid out the terms of his actions. Beijing is pursuing a combination of protectionist measures to tilt trade in its favor. However, it appears that China has never been required to comply in a way that would result in tariff reductions. Mr. Biden’s comprehensive approach risks turning a pragmatic policy of risk aversion into a dangerous policy of decoupling.
But this is mainly about optics. Biden’s approval ratings, especially confidence in his handling of the economy, are declining. The tariffs are aimed at appeasing voters in industrial heartlands, including swing states Pennsylvania and Michigan. The move risks turning President Trump’s campaign over his self-made hawkishness toward China into a contest. But Biden’s flurry of manufacturing endorsements is likely to draw support from unconvinced voters and cap a second Trump presidency, which some say could be more fickle than his first. It might help you get through it. Still, it is unfortunate that global growth and climate change progress must be held hostage in the process.
