China will likely not sit idle when the United States ramp up tariffs against its products again.
US Treasury Secretary Janet Yellen said she fears “significant” retaliation from China if Washington pushes forward with tariffs. Last month, Yellen also warned against China’s overproduction in key sectors, calling for increased protectionism of the US market.
On Tuesday, the Biden administration is set to announce new tariffs against Chinese products, quadrupling those already existing. Specifically, the new measures will target Chinese-made electric vehicles, solar panels, wind turbines, and semiconductors.
Biden’s new restrictions would be a continuation of the trade war started by his predecessor, former US president and current Republican candidate Donald Trump. Biden and Trump will face once more in the 2024 US elections, with Trump pledging unprecedented backlash against Chinese goods.
Specifically, the new tariff against China’s electric cars will increase to 100% from the current 25%. American carmakers fear the unprecedented rise of China in EV production, with Tesla’s CEO Elon Musk saying the US car industry would be “demolished” without more tariffs.
Semiconductors are also another field of fierce competition between the world’s two largest economies. Semiconductors are the basis of any digital product, including modern military equipment. Most of the world’s cutting-edge semiconductors are manufactured in Taiwan, a close US ally whose sovereignty is claimed in full by China.
The 2021 CHIPS Act signed by President Biden increases restrictions against semiconductor trade between the US and China. It also provides billions of dollars in government grants to revamp domestic microchip production.
China’s counterattack
Since 2018, China responded to American trade restrictions in kind. Last year, China upped barriers against exports of key commodities to the United States. China holds 60% of the world’s rare earth reserves, as well as several key materials for green energy production and battery manufacturing.
This advantage is a significant part of why China managed to become the world’s largest producer of lithium-ion batteries and electric cars.
Moreover, as Yellen also noted last month, Beijing heavily subsidizes these industries, making the United States completely dependent on China in these sectors.
“I have been very clear in my engagement with the Chinese that we believe there needs to be a level playing field for competition,” Yellen said, “and that we have particular concern about clean energy, semiconductors, and areas where China has, through its policies, encouraged so much investment that it’s led to overcapacity.”
Nevertheless, Yellen noted, China also can strike the United States, like it did in years past. So far, no comprehensive report on the effects of the US-China trade war has been drafted, therefore it’s impossible to know the full extent of China’s counterattacks.
“Hopefully we will not see a significant Chinese response. But that’s always a possibility,” Yellen said.
