Biden EV Tariffs Echo Trump China Trade Policy

President Biden's tariff measures are more Trumpian than not, and signal that a global paradigm change is accelerating.

When it comes to foreign policy vis-a-vis China, there is a secular orthodoxy between presidents and across the congressional aisle of taking China on more directly. In this regard, Donald Trump and Joe Biden are more similar than not. It’s therefore unlikely that policy in this area will change after the November election, regardless of who is president.

Politically, relations are going to become more combative than cooperative as nation-first security concerns take precedence over integration. Economically, this translates to more trade restrictions in areas with geo-strategic importance.

It’s therefore not surprising to see that on May 14, President Joe Biden tweeted out the following:

“I just imposed a series of tariffs on goods made in China:

25% on steel and aluminum,

50% on semiconductors,

100% on [electric vehicles],

And 50% on solar panels. China is determined to dominate these industries. I'm determined to ensure America leads the world in them.”

China dominates the market for EVs: In 2023, the Asian giant accounted for approximately 60% of total global EV sales, with approximately 11.5 million units sold throughout the year. In comparison, the US sold about 1.4 million units, a more than 40% increase from the previous year but still only about 10.2% of global EV sales.

Equally for solar panels, the sun shines bright on Beijing. In 2023, China installed 170 gigawatts (GW) of new solar capacity, which accounted for around 43% of the global total of approximately 400 GW. The US, on the other hand, added about 20 GW of new solar capacity in the same year, accounting for about 5% of global solar installations.

With the energy transition underway, maintaining an industrial and moral advantage vis-a-vis climate change is critical to national security for both China and the US. Both Democrats and Republicans in the US are also ringing the alarm bells that Chinese EVs could pose a security risk since they can be easily tracked and monitored.

For Biden and the Democrats who define their platform largely by a focus on climate change and with legislation to back it - e.g. the Inflation Reduction Act - falling behind could damage their credibility and give Republicans ammo ahead of key elections.

In 2024, this is particularly critical. In November, all 435 seats in the House of Representatives will be up for election, 34 positions in the Senate will be contested while 11 states will hold gubernatorial elections.

Securing both legislative houses will be crucial for advancing the respective agenda of whichever president is elected. However, regardless of who will be elected, policy towards China will not likely be altered. Already, we are seeing how Mr. Biden and Trump are more similar than conventionally thought when it comes to China.

We’re Not so Different, You and I

From roughly 2017-2021 during the Trump administration, export controls were placed on semiconductors to address national security concerns. In May 2019, the Trump administration added Huawei and its affiliates to the Entity List, effectively banning U.S. companies from selling or exporting sensitive technology to Huawei without a special license.

Further tightening occurred in August 2020, when the Commerce Department expanded these restrictions to cover additional technologies and components. This made it harder for Huawei to access semiconductors developed or produced using U.S. technology, even if manufactured by foreign companies.

Now, Mr Trump has warned that if elected, he will impose “tariffs of 200% on cars made by Chinese-owned plants in Mexico”.

The Biden administration (2021-2024) has largely continued and expanded these restrictions. The administration has maintained the Trump-era restrictions on Huawei and other Chinese tech companies, underscoring the importance of protecting national security and technological leadership.

In 2022, the Biden administration supported the passage of the CHIPS Act, aiming to bolster domestic semiconductor manufacturing and reduce reliance on foreign supply chains. Although not a direct restriction, this act incentivizes companies to produce chips within the US, indirectly influencing global semiconductor trade dynamics.

Additionally, in October 2022, the U.S. introduced new export controls designed to restrict China's access to advanced semiconductor technology, further tightening controls on tech transfers that could enhance China's military capabilities​.

The New Normal?

Up until recently, trade liberalization was a defining feature of the last few decades, where the average levy for imports dropped from 10% in the 1970s to 3% today. But no more.

The change in global trade patterns intersects with countries deploying nation-first industrial policies as a form of economic security in a fragmented world. The simultaneous implementation of these measures is not by accident, but an inevitable outcome of their intertwined economic objectives.

That is: moving away from multipolar, cross-regional collaboration to more regionalized, nation-first trading and industrial strategies. Not entirely by coincidence, this has major macroeconomic implications vis-a-vis inflation.

The risks for miscalculation in this geopolitical labyrinth are high: no politician wants to get burned by inflation. Phoenixes seldom rise from the ashes of ruined politics.