Biden's China Tariffs Will Disrupt Global Trade for Green Goods
Global Trade Alert
Timely and independent monitoring of policies that affect world commerce
President Joe Biden’s May 2024 decision to raise tariffs on various Chinese imports may trigger a chain reaction of trade barriers across global markets and increase the probability of further fragmentation for the green goods sector.?
While the stated aim of Biden’s tariffs is to encourage Beijing to curb its technology transfer policies, the tariffs also create a meaningful deterrent for Chinese imports of renewable energy goods like electric vehicles (EVs), lithium-ion batteries and solar cells.?
Unfortunately for members of the European Union and other Group of 20 nations, the tariffs will only exacerbate a persistent surge of low-priced Chinese green goods entering their markets.
These economies are now poised to respond in order to prevent trade deflection, whereby Chinese products originally destined for the US market flood into their economies instead.?
Should Biden’s tariffs succeed in triggering a global tariff cascade, economies like Australia, Canada, South Korea and the United Kingdom will likely see an uptick in Chinese EV and battery imports. Likewise, nations such as Brazil, Switzerland, South Africa, and Ukraine could soon become destinations for diverted Chinese solar products.?
Tariffs Beget More Tariffs
There's ample evidence to show that when the United States moves to restrict imports of specific Chinese goods, the EU and various G-20 members often follow suit by raising tariffs in the same sector.?
Indeed, Canadian Trade Minister Mary Ng told Bloomberg news this month that Canada is "absolutely looking" at whether to modify its tariffs on Chinese renewable energy imports in response.?
Recent trade skirmishes involving the US, EU and China offer a helpful benchmark for what comes next.?
For example, when the Obama administration imposed tariffs on Chinese solar products in 2012, the European Union followed suit a year later when it announced anti-dumping duties on Chinese solar cells.?
More recently, the Trump administration's 2018 decision to hike steel and aluminum tariffs prompted the EU and other western economies to restrict imports of foreign metals in order to avert harmful trade deflection into their markets.?
Electric Vehicles
Biden’s decision to raise tariffs on Chinese EVs from 25% to 100% will have a minimal impact on trade diversion to other countries due to the fact that the US is not a major importer of Chinese EVs.?
Europe is a different story, however. There is already a high level of Chinese EV imports entering EU member states, particularly Finland, France, Ireland and Spain (see Figure 1).?
These countries saw large import surges during the past three years (2021-2023) after importing barely any Chinese EVs prior to 2020, according to data collected by Trade Data Monitor .?
If the EU’s ongoing anti-subsidy investigation results in new import restrictions on Chinese EVs, (as is expected) trade diversion to extra-European economies is likely.?
EV Trade Deflection
So, which economies are most likely to see trade flows diverted into their ports if the EU joins the US in raising tariffs on Chinese green goods??
To answer this question we identified the economies that imported over USD $100 million worth of China’s “big three” renewable energy products in 2020 – EVs, electric batteries and solar cells.?
We then compared the average annual import values from the three-year periods before and after 2020 (hereafter described as “pre-surge” and “surge” periods) to determine which of these economies saw the highest percentage change between the two periods.?
Figure 2 provides a list of the top non-EU/US markets that have already seen the largest percentage increase in the value of imported Chinese EVs between the pre-surge and surge periods.?
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Only four of these economies – Australia, Switzerland, Turkey and the United Kingdom – have already imposed restrictions on imports of Chinese EVs, according to data collected by Global Trade Alert. Nevertheless, these countries still saw a rise in import value between the pre-surge and surge periods that exceeded the global average.
Other impacted nations – like Iceland, Canada and Japan – have not yet acted to restrict imports of Chinese EVs and are likely to see a rise in diverted trade flows if the EU follows the US and announces new tariffs this year.?
Electric Batteries
The US is the world’s top importer of Chinese lithium-ion batteries (see Figure 3) and Biden’s decision to increase tariffs from 7.5% to 25% may soon shift China’s trade flows to other trading partners.?
This poses a conundrum for EU member states who are already searching for ways to “de-risk ” their overreliance on China for the lithium-ion batteries that power European EVs and a range of renewable energy goods.?
Read More: The Green Goods Trade War is in Full Swing
Figure 4 shows the top ten non-EU/US markets that saw the highest average increase in the value of Chinese lithium-ion battery imports between the pre-surge and surge periods.?
Three of these economies – Australia, Turkey and Thailand – have already imposed trade restrictions that affect imports of Chinese lithium batteries, according to data collected by Global Trade Alert.?
In the absence of new trade barriers, South Africa, the United Kingdom and South Korea are likely to see an uptick in Chinese battery imports if the EU follows the US in raising tariffs this year.?
Solar Panels
Biden’s decision to raise US tariffs on Chinese solar cells from 25% to 50% will make domestically produced solar cells more attractive in the US and likely divert Chinese solar exports to other markets.
Various EU member states, where nearly all solar cells and modules are already produced by China , are vulnerable to trade deflection – particularly Latvia, Ireland, Romania and Bulgaria (See Figure 5).?
The Commission recently launched a probe to determine whether a pair of Chinese solar producers operating in Romania unfairly benefited from state subsidies.?
Figure 6 shows the top ten non-EU/US economies that saw the biggest rise in import value for Chinese solar panels between the pre-surge and surge periods.??
Four of these economies – Brazil, India, Indonesia and Thailand – have already imposed trade restrictions that affect Chinese solar imports, according to Global Trade Alert data.?
The remaining six countries – Pakistan, the Philippines, Israel, South Africa and Ukraine – are likely to see a rise in deflected imports if the EU follows the US in raising tariffs on Chinese solar cells.?
Conclusion
President Joe Biden’s recent tariffs on Chinese renewable energy imports mark a meaningful escalation in the US-China trade war and will have a disruptive impact on global markets for renewable energy goods.?
As other nations respond with their own trade barriers, it will intensify trade deflection among China’s trading partners and in doing so, fundamentally reshape the green goods trading landscape for years to come.?
The result of these new restrictions will be higher prices and reduced market access for precisely the type of goods that nations need to decarbonize their economies and reduce the risk of catastrophic climate change.