Analysis of the Biden Administration Tariffs

Recently, the Biden Administration announced a plan to enact new tariffs on certain goods imported from China. Tariffs are taxes imposed by a country on certain goods or services imported by another country and have historically been used as a tool in global trade.

In cases where countries want to promote trade with other nations, they will lower or even eliminate tariffs to incentivize imports from the area. On the flip side, if a country wants to limit trade, they will raise them to disincentivize trade with a particular country or items.

In this case, the overall goal of the Biden Administration with these tariffs is to either reduce current trade or prevent trade from starting with China on certain goods. This in theory will promote domestic production and manufacturing. These goods are outlined below with the proposed changes to the current tariffs:

 

Primary Objectives

When there are announcements of increased tariffs there are always concerns of increased costs. As the cost to import goods increases, so will the price, and in an environment where many Americans are feeling the push of inflation, these are very valid concerns. However, it is important to note that there are valid reasons and arguments in favor of these tariffs. The main objectives of the new tariffs can be summarized by the following points:

 

Protect and Enhance U.S. Manufacturing:

The White House would like to create a shield for domestic manufacturers from unfair competition and encourage investments in U.S. based manufacturing. Manufacturing creates jobs, which in turn strengthens the economy. It also keeps money in the U.S. rather than going to foreign markets when suppliers source domestically rather than from China. The tariffs on steel and aluminum, electric vehicles, and solar cells in particular support this objective.

 

Supply Chain Resilience:

The past five years have shown just how fragile global supply chains can be between the Covid-19 pandemic, attacks of commercial vessels in the Red Sea making it dangerous to route goods through the Suez Canal, droughts impacting the Panama Canal, and the numerous other supply chain disruptions that have wreaked havoc across all industries, it is clear that supply chains are susceptible to unpredictable disruptions. Global supply chains, while not without their advantages, create additional complexity and dependency on multiple pieces and many countries. There is less control, and that can be dangerous if the goods impacted are critical like medical supplies. By pushing to move manufacturing practices domestically, supply chains become less complex. The tariffs proposed on ship-to-shore cranes, semiconductors, batteries and battery components, and critical materials in particular support this objective.

 

Promote Fair Trade and Address Unfair Practices:

In recent years, China has engaged in unfair practices in the technology sector. There have been cases where intellectual property was stolen, as well as cases of forced technology transfers. These practices eliminate the need for the costly research and development process necessary to develop new technologies, making it so China has the ability to create technology for substantially cheaper than competitors. Disincentivizing importing tech from China with tariffs helps create a more level playing field for businesses in the U.S. and their workers. The tariffs on semiconductors, electric vehicles, and solar cells in particular support this objective.

 

Support Domestic Technological Innovation and Clean Energy:

These tariffs are anticipated to encourage investments in new technologies and clean energy solutions within the U.S., supporting the growth of sustainability as well as reducing carbon emissions. Not only will it help expand clean energy, but it will also reduce emissions by shifting to more sustainably run factories and less emissions due to transportation. The tariffs on batteries, battery components, and solar cells in particular support this initiative. 

 

Enhance Healthcare Security:

During covid-19, there were huge shortages in medical supplies. While the surge in demand for things like masks played a role, the other issue is that most of this material was not domestically sourced. Between lockdowns in China impacting manufacturing and spikes in shipping costs and delays, it was difficult to import the supplies needed by hospitals, doctors, and the general public. Since then, there has been a push to domestically produce critical medical supplies. This will ensure availability and reliability during emergencies. The tariffs on medical products support this initiative.

 

Most Impacted Industries

The manufacturing industries that will be most heavily impacted by the Biden Administration’s tariffs are those that rely heavily on the importation and use of the specific items targeted by the tariffs.

Here, we explore the most impacted industries and what the impacts could be:

 

Automotive Industry:

• Steel and Aluminum: The automotive industry uses large quantities of steel and aluminum for vehicle bodies, engines, and other components. Higher tariffs on these metals will increase production costs.
• Semiconductors: Modern vehicles are highly dependent on semiconductors for various electronic systems and features. Increased tariffs on semiconductors will raise costs and could exacerbate supply chain issues.
• Electric Vehicles (EVs): EV manufacturers will face higher costs for imported components such sas batteries and electric motors due to increased tariffs on EVs and batteries.
• Batteries and Critical Minerals: Manufacturers of automotive parts, especially those involved in producing components for electric vehicles, will face increased costs due to higher tariffs on batteries, battery components, and critical minerals like natural graphite and permanent magnets.

 

Electronics and Technology Industry:

• Semiconductors: This industry, including manufacturers of consumer electronics, computers, and telecommunications equipment, relies heavily on imported semiconductors. Higher tariffs will increase production costs and potentially lead to higher prices for consumers.
• Batteries: Many electronic devices use lithium-ion batteries. Increased tariffs on these batteries will raise costs for manufacturers of laptops, smartphones, and other portable electronic devices.

 

 

Renewable Energy Industry:

• Solar Cells: The renewable energy industry, particularly solar panel manufacturers and installers, will be impacted by higher tariffs on solar cells and modules. This could increase the cost of solar energy projects and slow down adoption rates.
• Batteries: Energy storage solutions, which are crucial for renewable energy systems, will also become more expensive due to higher tariffs on lithium-ion batteries.

 

Medical Device Industry:

• Medical Products: Manufacturers of medical devices, such as syringes, needles, PPE, and rubber medical gloves, will face higher costs due to increased tariffs on these items. This could impact the overall cost structure and pricing in the healthcare sector.

 

 

Construction and Infrastructure:

• Steel and Aluminum: The construction industry uses significant amounts of steel and aluminum for building infrastructure, commercial buildings, and residential housing. Higher tariffs on these materials will raise construction costs.
• Ship-to-Shore Cranes: Infrastructure projects at ports will be affected by higher tariffs on ship-to-shore cranes, increasing the costs of upgrading and expanding port facilities.

 

 

Heavy Machinery and Equipment:

• Steel and Aluminum: Manufacturers of heavy machinery and equipment, including agricultural machinery, construction equipment, and industrial machinery, will face higher costs due to increased tariffs on steel and aluminum.
• Semiconductors: Many types of machinery now incorporate advanced electronics and control systems that depend on semiconductors. Increased tariffs on these components will impact production costs.

 

 

Comparison to Trump Administration Tariffs in 2018

Back in 2018, the Trump Administration also enacted tariffs on China, showing both parties can acknowledge the challenges and imbalances of the United State’s trade relationship with China. Both seek to protect American businesses from unfair competition, but their approaches do differ.

The key difference between the approaches comes down to scope. The Trump Administration’s tariffs were encompassing of approximately $360 billion worth of Chinese Goods, impacting a wide variety of consumer goods. The focus with that approach was to reduce the trade deficit with China while adding pressure to China to make changes to their trade practices. The Biden Administration focused more on a specific scope of strategic goods to increase tariffs that align with the administration’s economic plan, which includes heavy federal investments in infrastructure, clean energy, and technology. This will impact $18 billion in imports.

In both cases, additional strain was added to an already tense trade relationship with China. In 2018, China retaliated against the tariffs by imposing tariffs on hundreds of billions of dollars’ worth of American goods, particularly targeting agricultural products, automobiles, and industrial goods, while also employing measures like currency manipulation and regulatory hurdles to impact U.S. businesses. It is quite probable that the Biden Administration will also see retaliation from China, who has already spoken out publicly against the new tariffs.