As the U.S. doubles down on Section 301 tariffs on Chinese imports, competing industrial policies are already reshaping international trade dynamics – as Descartes Datamyne global import-export data shows.
The U.S. Trade Representative (USTR) has invited comments on proposed new U.S. tariffs on China – as high as 100% on electric vehicles (EVs) – announced by the White House May 14, 2024. The executive action is based on the results of the statutory four-year review, opened a year ago, of tariffs first rolled out in 2018, under the authority of section 301 of the Trade Act of 1974. Section 301 equips the USTR with the means to investigate and counter threats to American intellectual property rights, innovation, or technology development.
The USTR’s four-year review of U.S. tariffs on China concluded that the import duties introduced in 2018 have, indeed, resulted in China curbing technology-transfer practices that unfairly penalized or restricted U.S. commercial interests. Most notably, the U.S.-China Economic and Trade Agreement of 2020 commits China to end the practice of requiring U.S. companies to transfer technologies to Chinese companies to obtain access to Chinese markets. The tariff-boosted cost of goods made in China helped trim China’s share of U.S. imports from 21.6% in 2017 to 13.7% in 2023. The Section 301 duties are also credited with encouraging U.S. companies to diversify production away from China.
However, many tech transfer practices with negative consequences for the U.S. economy persist, the USTR review found. There is also an alarming rise in alleged cyber intrusions and cybertheft to be reckoned with. Accordingly, the USTR has determined that existing U.S. tariffs on China should remain in place, and tariffs on selected goods should be ramped up. This table, Figure 1, provides a summary of the new U.S. tariffs on China by broad product category, many to take effect as soon as August 1.
Figure 1 New U.S. tariffs on China strategic targets
Source: Descartes Datamyne
Extending U.S. tariffs on China to ship-to-shore cranes reflects government worries about cyber intrusions of critical infrastructure. Additionally, with memories of COVID-era shortages of personal protective equipment (PPE) still fresh, the need to encourage homegrown production of facemasks, gloves, and syringes is the rationale for increased duties on these products.
The U.S. has long been concerned about global overcapacity in steel and aluminum production. In addition to the section 301 tariffs on Chinese steel, the U.S. also imposed tariffs under section 232 (of the Trade Expansion Act of 1962), aimed at mitigating national security risks, in 2018. This on top of antidumping duties that have been applied to selected products – from various countries of origin, but with the greatest frequency to imports from China – starting in the 1990s. According to the USTR, the new U.S. tariffs on China are intended to reduce opportunities for circumventing protections already in place.
The section 301 actions on semiconductors and, especially, green energy inputs and products aim to support America’s new industrial policies, while anticipating and factoring in China’s evolving industrial policies.
China prioritizes the “new three”
Policymakers steering China’s economy continue to face many post-COVID challenges, as the Financial Times reports. The country’s real estate sector is in recession, domestic market demand remains tepid, and its manufacturing capacity appears to be outstripping demand – as reported by, among others, the Wall Street Journal here, here, and here. China wants to reinvigorate economic growth by ramping exports. Key to that effort is prioritizing investments in its green industries, starting with photovoltaics, lithium-ion batteries and electric vehicles, products it expects will be in high demand in the global marketplace. China’s pivot to the “new three” (from the traditional “old three” – furniture, clothing, and appliances) has already paid off with a gain of almost 30% in the value of these exports in 2023, reports China Daily.
Descartes Datamyne global trade data confirms year-over-year double-digit percentage growth (22.3%) in exports of just three products representative of the new three: solar panels, Li-ion batteries, and all-electric passenger cars, as Figure 2’s illustrates. All three exports are subject to the new U.S. tariffs on China.
Figure 2 China’s exports of the “new three” green energy products
Source: Descartes Datamyne
The U.S. invests in chips and clean energy
Meanwhile, China’s top export market has launched its own industrial policy initiatives with the goal of improving its global economic competitiveness. Through such legislation as the CHIPS Act, the Inflation Reduction Act, and the Bipartisan Infrastructure Act, the U.S. is investing in building production capacity and innovating technology in sectors it deems strategic to national security: semiconductors, clean energy, and transport electrification.
The new U.S. tariffs on China are designed expressly to support these investments by decreasing U.S. reliance on Chinese imports for the inputs and products of these sectors and providing leverage on China to eliminate questionable tech transfer practices.
Global trade data from Descartes Datamyne shows America is a net importer of many key products in strategic-sector supply chains. Figure 3 shows the U.S. balance of trade in graphite, lithium-ion (Li-ion) batteries, photovoltaic cells (PVCs), and EVs.
Figure 3 U.S. 2023 import-export trade in products subject to the new U.S. tariffs on China
Source: Descartes Datamyne
Note that U.S. imports of these products from China have been subject to section 301 tariffs since 2018 – with the exception of natural graphite, a critical “feedstock” for Li-ion batteries. Graphite imported from China was a candidate for section 301 tariffs originally, but battery makers in the U.S. asked that it be excluded as few alternative sources were available (see, e.g., Rush for Lithium-Ion Batteries Rerouting Supply Chains.) In 2018, China was the source for 39% of US$64 million in U.S. graphite imports. The exclusions have been extended periodically, but it looks like their time could be up January 1, 2026.
U.S. seeks alternatives to Chinese graphite
Global trade data from Descartes Datamyne in Figure 4 indicates that China is the top source for U.S. imports of natural graphite, accounting for 70% of imports last year, valued at US$157 million. The U.S. is among the top, though not the top market for Chinese graphite: South Korea’s share of this trade is nearly double the U.S. share.
Figure 4 Chinese graphite export markets vs. U.S. graphite import sources 2023
Source: Descartes Datamyne
The U.S. Geological Survey (USGS) reports that worries about reduced supply from China prompted many U.S. companies to start stockpiling graphite in fourth-quarter 2023. Demand for Chinese graphite got a further boost from abundant supplies at lowered prices – which deflated global market prices overall, forcing alternative source Mozambique to suspend mining operations for four months. Figure 5 captures the impact on U.S. import volumes. (Note that the same data source, Descartes Datamyne bill of lading import data, identifies the consignees and shippers in this trade – in this instance, 100 buyers and 133 sellers.)
Figure 5 U.S. waterborne imports of graphite month-by-month 2023
Source: Descartes Datamyne
According to USGS, U.S. imports for consumption increased 68% from 2019 to 2023. U.S. apparent consumption grew 72% over the same period, as the number of Li-ion battery factories increased from 3 to 10. An additional 28 facilities are under development. In addition to the stick of price-boosting import tariffs, the U.S. government is offering carrots to encourage developers of domestic and nearer-shore graphite resources, including a $37.5 million IRA grant to a mining project in Alaska, and a $3.2 million grant to an Alabama project through the Defense Production Act. Nonetheless, the U.S. will be seeking graphite in the global marketplace to meet domestic industrial demand for some time to come.
China looks for new markets for its EVs
In contrast to its graphite imports, the U.S. does not rely directly on China for EVs. In fact, the U.S. imports a negligible number of EVs made in China, as the charts in Figure 6 illustrate. The pending U.S. tariffs on China are intended to keep it that way.
Figure 6 China’s EV export markets vs U.S. EV import sources 2023
Source: Descartes Datamyne
The USTR’s four-year review of U.S. tariffs on China directly cites the Chinese government’s plan to boost exports of the “new three” as the rationale for raising import duties from the current 25% to 100% on Chinese EVs.
China now produces 70% of the world’s electric vehicles. Until recently, that production has been absorbed to a great extent by domestic demand. As the USTR notes, and Descartes Datamyne global trade data on trade in all-electric EVs illustrates (in Figure 7 below), China’s exports have surged in the last two years, with Europe being the top destination.
Figure 7 China’s import-export trade in all-electric vehicles 2019 through 2023
Source: Descartes Datamyne
The U.S. wants to electrify transportation, but not at the cost of U.S. jobs. The IRA ties the incentives the government offers American car buyers to (mostly) made-in-the-USA EVs, as NPR explains here. The bet is that retooling incentives – along with U.S. tariffs on China that double the price of made-in-China EVs (regardless of brand) – will direct the export surge to other markets.
In fact, U.S. tariffs on China have already helped produce this result. U.S. and European carmakers take advantage of China’s lower production costs (and the Chinese government’s own set of domestic industry-boosting incentives) to manufacture EVs for the Asian and European markets, according to an analysis from the Center for Strategic & International Studies. That same analysis indicates that Chinese-branded cars do not fare so well in those markets.
Of more immediate concern for China, the current EV export surge may cause more barriers to trade to be raised. As Bloomberg reports (here and here), cars arriving from China at Canada’s port of Vancouver rose more than fivefold in 2023. The Canadian tariff on made-in-China EVs is currently just 6% – but the government has been called upon to match the U.S. tariffs on China. The EU announced tariffs of 48% on Chinese EVs to take effect in July, the FT reported June 12. Among the next options for China are retaliatory tariffs and/or a shifting its export initiative to markets in the global south.
How Descartes Datamyne Can Help
Descartes Datamyne plays a crucial role in tracking developments related to the pending U.S. tariffs on China by providing detailed, real-time global import-export data. As the international trade landscape shifts due to these tariffs, Descartes Datamyne can help businesses and policymakers understand the immediate and long-term impacts on various industries, including semiconductors and green energy sectors. By tracking trade flow data, stakeholders can identify trends, such as changes in the volume of Chinese exports of photovoltaics, lithium-ion batteries, and electric vehicles, and how these shifts affect global supply chains.
Moreover, Descartes Datamyne’s can reveal the impact of new tariffs on U.S. imports, offering insights into how American companies are adjusting their sourcing strategies. For instance, the data can show whether there is a significant reduction in imports of specific Chinese products subject to higher tariffs and whether there is an increased import volume from alternative markets. This information is invaluable for businesses looking to diversify their supply chains and mitigate the risks associated with reliance on Chinese imports.
Additionally, Descartes Datamyne can help track the effectiveness of U.S. tariffs in curbing unfair trade practices and promoting domestic production. By providing a comprehensive view of trade dynamics, the data supports evidence-based decision-making for policymakers aiming to enhance national security and economic competitiveness. In summary, Descartes Datamyne’s global trade data is essential for navigating the complexities of the evolving trade environment between the U.S. and China, helping to monitor and respond to the market shifts.