Although the Section 301 duties are often thought of as tariffs on China, they are actually paid by U.S. importers and are tariffs on U.S. importers and consumers. Originally, there was a process that excluded U.S. importers who imported the product if they could demonstrate that the product was not produced in the U.S. These exclusions ended in 2020. U.S. importers have complained that the tariffs have increased their costs, which are passed along to consumers. Secretary of the Treasury Janet Yellin recently called the tariffs inflationary and opposed their continuation. She is one of the few in the Biden Administration who oppose these tariffs.
The U.S. Trade Representative is currently completing a four-year review of the Section 301 tariffs. Most observers believe that they will soon be extended and perhaps even expanded. President Trump and President Biden both have supported higher tariffs, allegedly to protect American workers and industries. In fact, President Biden in some ways has gone further than President Trump, creating what his U.S. Trade Representative Katherine Tai describes as a “worker-centric” trade policy, something that has been referred in the past by the less pleasant reference “protectionistic.”
Recent Escalations in the EV Space
Recent developments in February and March 2024 indicate that these tariff wars are escalating into new areas. Tough new environmental rules and deadlines have put pressure on U.S. auto manufacturers to move rapidly to electric vehicles (EVs). U.S. manufacturers have invested large amounts in retooling and building facilities for EVs.
China, on the other hand, has had a large EV industry for many years and is considered to be ahead of the U.S. in many areas of EV manufacturing. Suddenly the U.S. is worried it cannot compete with China in the EV market – which would be a disaster for U.S. “worker-centric” trade policies.
Although Chinese EVs have not yet hit the U.S. market, one large Chinese manufacturer, BYD, is advertising a $10,000 vehicle, the Seagull, a price that no U.S. manufacturer can duplicate. The U.S. is concerned that China is subsidizing its EV production and will dominate the nascent U.S. EV market.
Already, the U.S. has taken a number of steps to prevent this; for example, the $7,500 tax credit under the Industrial Recovery Act (IRA) is only available for autos that have final assembly in the U.S. and whose batteries have a certain amount of U.S. content that is increasing each year. In March 2024, China opened a dispute against the U.S. challenging this subsidy at the World Trade Organization (WTO).
The U.S Response to China Regarding Auto Imports: Evoking “National Security”
President Biden recently issued a strong warning to China. The February 29, 2024, “Statement from President Biden on Addressing National Security Risks to the U.S. Auto Industry” declares: “China is determined to dominate the future of the auto market, including by using unfair practices. China’s policies could flood our market with its vehicles, posing risks to our national security. I am not going to let this happen on my watch.”
In addition to this strong general statement of his motives and intentions, President Biden made more specific promises to take action on Chinese cars based on national security: “I am announcing unprecedented actions to ensure that cars on U.S. roads from countries of concern like China do not undermine our national security. I have directed the Secretary of Commerce to conduct an investigation into connected vehicles with technology from countries of concern and to take action to respond to these risks.”
“National security” is the key word, as it links the investigation to Section 232 of the Trade Expansion Act of 1962, often referred to as the “National Security Clause.” This law was last used in 2018 by President Trump to impose tariffs on steel (25%) and aluminum (10%) from many countries.
Section 232 is probably the strongest weapon in the U.S. arsenal of trade remedies. It is administered by the Commerce Department and, although there is an evidentiary hearing, lacks the safeguards of a court case. It is possible for importers to win a Section 232 case, however, if they have good counsel and support in key industries. For example, President Trump had also started an investigation under Section 232 on a tariff on automobiles, but it was never implemented. At that time, most of the automotive industry (including U.S. companies with overseas plants) opposed the tariffs, as did key automotive suppliers in the steel and aluminum industries. At the hearings, the only group testifying in favor was the United Auto Workers.
Proposed Legislation on Imports from China
Concerns raised by low-priced Chinese EVs have led Senator Josh Hawley (R-MO) to introduce several bills, rekindling the trade wars that had been fairly low-key since President Biden took office.
The Protecting American Autoworkers from China Act (introduced in 2024) would increase the base tariff rate of auto imports from China to 100%, for a total tariff of 127.5% on all imported autos from China (the existing duty on automobiles of 2.5%, plus the 25% Section 301 tariff, plus the proposed 100% new tariff).
The Ending Normal Trade Relations with China Act (introduced in 2023) would revoke China’s normal trade relations status. China would no longer be eligible for the reduced “Most Favored Nation” (MFN) tariffs granted to almost all members of the World Trade Organization (WTO) but would be subject to a Column 2 tariff of 10%, four times the normal automotive tariff. Currently, the only countries paying these higher non-MFN rates are Cuba, Russia, and North Korea. This action would apply to all exports from China, not just autos. It would quadruple the existing MFN tariff now paid by most auto and auto parts producers to 10%, with most also paying the 25% Section 301 tariff.
At the time of publication of this article, these bills were pending in Congress. As the 2024 election approaches there is likely to be more interest in and discussion of trade legislation; it could become more of an election issue.
