The latest tariffs imposed by the Biden administration on Chinese electric vehicles and other vital industries are intended to safeguard American industry going forward, but they will probably hasten China’s production move from China to Mexico, Vietnam, and other countries in order to avoid them.

According to U.S. officials and trade experts, China’s cheap surplus manufacturing will continue to make its way into American markets unless significant measures are made to stop transshipped or minimally processed Chinese goods from entering the country from Mexico and other nations.

“Imports from China may be prevented from entering the country by the new tariffs, but it’s possible that a significant portion of those imports will be redirected through non-tariff countries,” noted Eswar Prasad, a Cornell University trade policy professor and former IMF director for China.

Because of their closer proximity and cheaper prices, Mexico and Vietnam have profited the most from the rising U.S.-China trade tensions, according to Prasad. However, he said that both countries must avoid Washington’s “ire” in order to continue benefiting from new manufacturing investments.

For example, in the first three months of 2024, more than $115 billion worth of products came from Mexico, surpassing China as the country’s main supplier of imports into the United States, while China’s share was less than $100 billion.

With that growth, worries about Mexico turning becoming a centre for Chinese goods transshipping to avoid U.S. tariffs have intensified. This is because U.S. imports of steel products have increased, and Chinese electric vehicle manufacturer BYD has been looking for suitable locations for a Mexican facility that might service the U.S. market.

Last month, there were rumours that Mexican officials were under pressure from American officials to reject investment incentives to Chinese automakers.

President Joe Biden recently increased tariffs on Chinese imports of high-tech goods, which will cause the punitive charges on Chinese electric vehicles to increase fourfold to over 100%. In addition, new 25% tariffs on Chinese essential battery materials, Chinese graphite, and EV battery magnets will be imposed over the course of the next two years, in addition to a doubling of levies on semiconductors and solar cells to 50% this year.

The Biden administration is attempting to build new domestic manufacturing sectors with hundreds of billions of dollars in tax incentives and subsidies; these industries are intended to be protected by the tariffs.

Reporters were informed by U.S. commercial Representative Katherine Tai that she was worried about Mexico’s commercial ties with China and to “stay tuned” for more initiatives aimed at preventing tariff evasion.

“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 stated.

Under the terms of the U.S.-Mexico-Canada Trade Agreement, Mexico enjoys nearly zero U.S. tariffs, while the U.S. Commerce Department is thinking of giving Vietnam “market economy” status, which would lower anti-dumping levies on Vietnamese imports.

Prior to the introduction of the China tariffs, senior advisor Cara Morrow, another USTR official, told Reuters in an interview that the trade agency has been talking with Mexican colleagues about measures to lessen the increasing transshipment of Chinese steel and aluminium through Mexico.

In addition to 25% national security tariffs and triple-digit anti-dumping and anti-subsidy taxes on various Chinese steel imports, Biden’s action raises the “Section 301” duties on steel from 7.5% to 25%.

The goal of the USMCA, according to Morrow, was “not to provide a back door to China,” as U.S. officials had made clear to Mexico. Both countries also hope to get the matter out of the way for the trade agreement’s anticipated 2026 review.

After six years, the three nations may choose to renegotiate or end the USMCA, according to the agreement that went into effect in July 2020.

According to Morrow, Mexican authorities saw Chinese overproduction as a danger to their own economy, even as USTR discusses measures in “difficult” discussions about Mexico’s anti-dumping levies on steel and aluminium as well as improved import and export surveillance of the metals.

By rerouting China’s surplus production of EVs, solar items, batteries, and steel to European borders where EU trade safeguards are often less stringent, Biden’s decision may further increase pressure on that continent.

Attempting to stop Chinese overproduction “is comparable to popping a balloon. William Reinsch, a trade specialist at the Centre for Strategic and International Studies in Washington, stated that it “pops out in one place and shrinks in another.”

(Adapted from TheDailyStar.net)  

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy