China hits back as US proposes new tariffs for 'unfair' tech-transfer policies that 'burden' US commerce

Washington's proposal on Tuesday to increase tariffs on imports of Chinese semiconductors, electric vehicles (EVs), steel and batteries drew a swift rebuke from Beijing, with allegations that the "political" decision further deteriorates already frayed ties between the world's two largest economies.

"The US side is coming from political considerations" the Chinese Ministry of Commerce said in a statement on its website. "Specifically, it's a typical political play, and the Chinese side expresses strong dissatisfaction."

To press Beijing over technology-transfer issues, tariffs would rise to 100 per cent from 27.5 per cent on Chinese EVs and to 50 per cent on its semiconductors and solar cells, according to 14 proposed increases released by the US president's executive office. Tariffs on lithium-ion vehicle batteries and battery parts would rise to 25 per cent. The US also proposed Increasing tariffs to 25 per cent on steel and aluminium products.

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The increases are expected to be implemented from this year through 2026, depending on the items.

In response, Beijing's Ministry of Foreign Affairs spokesman Wang Wenbin said China would take "full necessary measures to safeguard its legitimate rights and interests".

And in its separate statement, the Ministry of Commerce accused the US of "making mistakes again and again" and said the proposed tariff hikes violate President Joe Biden's commitments to avoid decoupling from China and "not to seek to suppress and contain China's development".

"This will seriously affect the atmosphere of bilateral cooperation," the statement says. "The United States should immediately correct its wrongdoing and cancel the additional tariffs imposed on China."

Tariffs on the table cover US$18 billion in goods, news agencies reported.

"President Biden is directing me to take further action to encourage the elimination of the People's Republic of China's unfair technology-transfer-related policies and practices that continue to burden US commerce and harm American workers and businesses," US Trade Representative Katherine Tai said in the statement.

Tai specifically called out "cyber intrusions and cyber theft" as transfer-related problems.

Before Tuesday's announcement, some of Biden's economic officials had indicated concerns about manufacturing overcapacity in China and a possible overflow flooding American markets.

US Secretary of the Treasury Janet Yellen raised Chinese capacity concerns in her own statement on Tuesday, echoing concerns that she had raised during a visit to China in April about new-energy vehicles and solar modules.

"President Biden and I have seen firsthand the impacts of surges of certain artificially cheap Chinese imports on American communities in the past, and we will not tolerate that again," Yellen said.

"These overcapacity concerns are widely shared by our partners across advanced economies and emerging markets, motivated not by anti-China policy but by a desire to prevent damaging economic dislocation from unfair economic practices," she said. European leaders have also voiced concerns about Chinese capacity and the risk of dumping.

"These problems built up over time and will not be solved in a day," Yellen said.

Previous tariffs have helped encourage China to take steps on issues identified by the US on acts, policies, and practices that Washington says violate international trade agreements, according to Tuesday's statement by Biden's executive office.

On Monday, China took steps to showcase its supply-chain role for major international brands, showing how it was bunkering down ahead of the new tariffs. Some of its biggest foreign investors were gathered at a forum held by the China Council for the Promotion of International Trade (CCPIT) and addressed by Vice-Premier Han Zheng.

"China is willing to be more open and adopt a more innovative way of thinking and approach to drive momentum for hi-tech innovation and development," Han said. "We are looking for global partners for new areas of development and finding new models of growth.

"China's capacity for developing sectors like green energy and green transport is still available."

The forum was held as a prelude to the CCPIT's second supply-chain expo, which will be held in November, as a display of China's global position as a manufacturer in a time of de-risking.

This is an election year in the US," said Chen Zhiwu, chair professor of finance at the University of Hong Kong. "I do think Chinese officials had been prepared for this. This shouldn't have been a surprise."

Biden has followed the lead of former US president Donald Trump, who is also a presidential candidate this year, in restricting imports from China. Trump has said he would raise all tariffs on China by 60 per cent if he won the November election and took office in January.

China will not be fazed by the EV tariffs because the United States takes relatively few EVs compared with Europe, Chen said.

He called the proposed EV tariff hike "symbolic" and said US election politics drove the announcement on Tuesday.

Chinese authorities have rejected claims that they are exporting excess industrial capacity, calling suspicions in the West an excuse to pursue trade protectionism. Leadership has also contended that China's global dominance in the production of three key energy transition products - electric vehicles, batteries and solar panels - is the result of competitiveness.

Washington's proposal on Tuesday suggests establishing a process to exclude machinery used in domestic manufacturing, including 19 types of solar manufacturing equipment, from the tariff hikes.

Next week, the Office of the US Trade Representative will issue a notice allowing public comment on the proposed tariff hikes.

China is likely to follow up on US tariffs with its own, analysts said on Tuesday, though it might push Washington for negotiations and is sure to focus exports on third countries.

The latest spat adds to the tensions between China and its foreign trade partners and investors that have responded to calls from Western governments to "de-risk" from China, by moving manufacturing and supply chains out of China since the pandemic.

While some official economic indicators appear to show that China's economy has seen some uptick from last year, confidence among foreign investors and in the private sector has yet to fully rebound.

Foreign direct investment in China was 301 billion yuan (US$41.6 billion) in the first quarter of this year, down 26 per cent from a year earlier, according to the latest data released by the commerce ministry.

China-US trade last year came to about US$575 billion, and about US$427 billion were Chinese shipments to the United States.

Initial tariffs among those proposed on Tuesday will probably take several months to become "operational", Chen said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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