Biden’s China tariff wall faces leakage via Mexico, Vietnam - GulfToday

Biden’s China tariff wall faces leakage via Mexico, Vietnam


Chinese workers carry out their tasks at a factory.

The Biden administration’s new tariffs on Chinese electric vehicles and other strategic sectors aim to protect the future of US manufacturing, but they will likely accelerate a shift of Chinese production to Mexico, Vietnam and elsewhere to avoid them. US officials and trade experts say that without strong efforts to cut off transshipped or lightly processed Chinese goods from Mexico and other countries, China’s underpriced excess production will still find its way into US markets. “The new tariffs might keep out imports from China but it is likely that much of those imports could be rerouted through countries not subject to the tariffs,” said Eswar Prasad, trade policy professor at Cornell University and a former China director at the International Monetary Fund. Mexico and Vietnam, in particular, have benefited from escalating US-China trade tensions due to their lower costs and proximity, Prasad said, adding that they both need to avoid Washington’s “ire” while reaping new manufacturing investments.

Mexico, for one, has overtaken China as the top source of imports into the US, with more than $115 billion of goods originating from there in the first three months of 2024 versus less than $100 billion from China.

With that surge, concerns have grown about Mexico becoming a transshipment hub for Chinese goods to skirt US tariffs, due to increasing US imports of steel products from Mexico and Chinese EV maker BYD scouting out locations for a Mexican factory that could potentially supply the US market. Reuters reported last month that U.S. officials have pressured Mexico to refuse investment incentives to Chinese automakers.

Punitive duties on Chinese EVs will soon be quadrupled to more than 100% under President Joe Biden’s new tariff hikes on high-technology imports from China. The action also includes a doubling of duties on semiconductors and solar cells to 50% this year and new 25% tariffs on Chinese critical battery minerals, Chinese graphite and EV battery magnets over the next two years.

The tariffs are designed to protect new domestic manufacturing sectors that the Biden administration is trying to develop with hundreds of billions of dollars in tax incentives and grants. US Trade Representative Katherine Tai told reporters she was concerned about Mexico’s trade relationship with China and to “stay tuned” on future separate efforts to head off tariff evasion problems. “The fact pattern that’s developing is one that is of serious concern to us, and that at USTR, we are looking at all of our tools to see how we can address the problem,” Tai said. Mexico benefits from largely zero US tariffs under the US-Mexico-Canada Agreement on trade, while the US Commerce Department is considering granting Vietnam “market economy” status, which would reduce anti-dumping duties on Vietnamese imports.

Another USTR official, senior adviser Cara Morrow, told Reuters in an interview prior to the China tariff announcement that the trade agency has been engaging with Mexican counterparts about ways to reduce the rising transshipment of Chinese steel and aluminum through Mexico. Biden’s move increases the “Section 301” duties on steel to 25% from 7.5%, but there are also 25% national security tariffs and triple-digit anti-dumping and anti-subsidy duties on many Chinese steel products. U.S. officials have made it clear to Mexico that the USMCA was intended to promote North American integration and competitiveness, “not to provide a back door to China,” Morrow said, adding that both sides want to prevent it from becoming an issue in an expected 2026 review of the trade deal.

Under the pact put into force in July 2020, the three countries could seek to renegotiate or terminate USMCA after six years.

USTR is discussing Mexico’s anti-dumping duties on steel and aluminum and better monitoring imports and exports of the metals and other steps in “difficult” negotiations, but Mexican officials also see Chinese overproduction as a threat to their own economy, Morrow said.

Biden’s action also could put more pressure on Europe by diverting Chinese excess production of EVs, solar products, batteries and steel to their shores, where EU trade protections are generally lower.

Trying to block Chinese excess production “is like squeezing a balloon. It shrinks in one place and pops out in another,” said William Reinsch, a trade expert at the Center for Strategic and International Studies in Washington.

Meanwhile, China’s measured response to the US move to hike tariffs on $18 billion of Chinese goods from syringes to batteries suggests relations between the world’s two largest economies face more frost rather than a fresh firefight over trade. China denounced the Biden administration’s action and vowed “resolute measures” to protect its interests. But Beijing’s response also suggests a new dynamic — and confidence — compared with 2018 when Trump-era tariffs on $300 billion of Chinese goods touched off an escalating trade war, analysts said.

Among the differences between then and now: the Biden White House flagged potential measures to Chinese officials in advance and the tariffs target industries, including EVs and batteries, where the economic impact is limited and Chinese companies’ dominance appears unassailable.

In response to the tariffs, Chinese state media have shot back, accusing the United States of subverting its own free trade principles and taking action that threatens climate goals and will push up costs for American consumers. In essence, the argument goes, you are hurting yourself. That marks a break from the tone in 2018, when a Chinese negotiator said Washington was putting “a knife to China’s neck” and state media had suggested extreme counter-measures like a boycott of US food imports or a sell-off of US bonds.

“China can take the moral high ground,” said Wang Huiyao, founder and president of the Beijing-based Center for China and Globalization, a think tank. “It doesn’t play around with those who break international standards and norms.” In the starkest language of its response, the Chinese commerce ministry said the White House had broken the spirit of an agreement to steady bilateral relations reached by Chinese President Xi Jinping and U.S. President Joe Biden late last year in San Francisco. Biden has said he wants to win this era of competition with China but not to launch a trade war, and US officials have looked to engage Beijing on limited areas of cooperation, including climate change.



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