PROPOSED TARIFFS AND THE 2024 ELECTION

As the fabric of globalization frays, the US-China economic relationship has deteriorated at an alarming rate over the last few years. Growing economic competition, rising tariffs, and economic tensions threaten the possibility of U.S-China economic cooperation.

In this era of economic turmoil, the U.S and China face growing uncertainty about their bilateral economic relations, with the 2024 election amplifying this uncertainty. The outcome of this election may reshape U.S. trade policy toward China. This article offers insights into what trade policy post-election could look like as we consider the outcomes of this critical election.

Before considering shifts in trade policy post-election, it is important to consider changes in U.S-China economic relations over the last few years. In 2018 and 2019, former President Donald Trump imposed tariffs on around $380 billion of Chinese goods. President Biden has followed suit, largely maintaining Trump-era tariffs while adding on tariff hikes for about $18 billion worth of Chinese goods. Key industries affected include:

Electric Vehicles: The tariff rate on electric vehicles will see a substantial increase from 25% to 100% in 2024.
Solar Panels: Solar panel imports will see a 50% tariff in 2024
Lithium Batteries: The tariff rate for lithium batteries used in electric vehicles will more than triple from 7.5% to 25% in 2024, and the tariff rate for lithium batteries not used in electric vehicles will see the same increase in 2026.
Semiconductors: The tariff rate on semiconductor imports will double from 25% to 50% by 2025.

US officials have claimed that these tariffs are necessary to maintain US economic competitiveness over China. Specifically, there are two reasons why policymakers are pursuing tariffs.

The first is to protect U.S domestic industries. Tariffs are intended to counter China’s “state-driven excess capacity” practices in specific industries like those impacted by the tariff, where the Chinese government is supporting excess production of goods that crowds out global companies through mass exports. Tariffs on electric vehicles, for example, are to prevent the crowd-out of US auto manufacturers and decrease dependence on China for electric vehicle supply chains.

The second is to respond to unfair trade practices. Findings of a four year review under Section 301 have claimed China has committed poor trade practices, including technology transfer and intellectual property theft issues.

The impact of these tariffs, however, has been limited overall. The $18 billion addition in tariffs is small in proportion to the tariffs added during the Trump-era. However, tariffs could force supply chain shifts for the many US companies that rely on Chinese inputs for manufacturing. Companies could face challenges finding alternative input sources due to China’s existing competitive advantage and pricing in the market. Tariffs could also hinder the US green energy transition as many of the tariffs influence green tech, where China has become the world leader on renewable energy.

These tariffs are posed to have a limited impact on many Chinese companies in the affected industries as well. This is because some Chinese industries, such as the electric vehicle industry, already do not sell much to the US. However, some Chinese companies in the impacted industries will be less competitive in the US market, potentially limiting their ability to sell or expand into the U.S market. Moreover, some are concerned that these tariffs will exacerbate already existing trade tensions and could lead to retaliatory tariffs from China, similar to the tit-for-tat exchanges seen in the trade wars during Trump’s presidency.

With past impacts of tariffs in mind, many are wondering how the outcome of this election will impact US China trade relations.

If Harris wins the election, trade policies will likely remain similar to the Biden administration’s policies. Rather than blanket tariffs, which she claims would increase costs for US consumers, she prefers using targeted tariffs on key industries. During her time with the Biden administration, she supported the recent tariffs, including the 100% tariff on electric vehicles and the 50% tariff on semiconductors. Importantly, she is more supportive of multilateralism than Trump, claiming not to be a “protectionist democrat,” so she may have more reservations when imposing trade restrictions on China.

If Trump wins, we are likely to see more extreme tariff policies. Specifically, we could see a 60% tariff on all Chinese goods, accompanied by a phase-out of imports of basic Chinese goods including electronics, steel, and pharmaceuticals. There may also be the blocking of Chinese purchases in US real estate and industry. Furthermore, there are talks of repealing China’s Most Favored Nation (MFN) status, which would mean that China is no longer guaranteed to nominally receive equal trade advantages.

These policies could result in slower GDP growth in both US and Chinese economies. Businesses that rely on imports and exports would face higher costs and lose market share in each other’s economies. Trump’s blanket tariff could also exacerbate inflation as US consumer costs increase, with estimates ranging between a $1,350 to $3,900 increase per year in expenditures for the average middle-class family. These impacts could only be further magnified if China follows suit and responds with retaliatory tariffs as they have in the past.

The American tariff policies impact not just economic relationships, foreshadowing the fate of cooperation between the two countries. As the election unravels, the world continues awaiting the fate of not just future US-China trade, but all US-China economic and political relations.

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