The Biden China Tariffs

The one thing Trump and Biden agree on

Photo by Suzy Brooks on Unsplash

Several weeks ago, the Biden administration announced new tariffs on a host of Chinese goods. Tariffs on steel and aluminum products increase from 7.5 percent to 25 percent. Tariffs on semiconductors increase from 25 percent to 50 percent. lithium-ion batteries from 7.5 percent to 25 percent. Solar cells from 25 percent to 50 percent, syringes and needles from 0 percent to 50 percent. Finally, and this is what grabbed the headlines, tariffs on electric vehicles will go from 25 percent to a whopping 100 percent.

A tariff is just a tax on a foreign good. So now, if a Chinese car company wants to build a car in China and sell it in America and sell it for $20,000, they will have to pay an additional $20,000 in tax. There are several reasons for instituting such high tariffs. The two that are given by the Biden administration are to aid American industry and protect national security interests. Let’s examine each of these in turn.

The logic behind protecting American industry is simple. The higher prices are for imported goods, the more protection American producers will have. If a Chinese company can sell a syringe for $10 and make a profit, and an American firm can sell it for $13, then most people will opt for the Chinese version. Some will want to “buy American” or decide they don’t trust Chinese syringes, but for most, the lower price will carry the day. With the tariff this changes. That Chinese syringe has an added 50 percent tax on it. Now the Chinese company needs to sell the syringe for $15, not $10. The American syringe is now cheaper, so most people will buy that.

The problem with these types of tariffs is that American consumers are ultimately the ones who pay the price. If Americans were buying Chinese syringes over American-made ones, then they must be better (or at least perceived to be). With the tariff, Americans can no longer pay $10 for their preferred syringe. They have to pay $13 for an inferior one. Of course, that American company isn’t stupid. They will likely raise their prices from $13 to $14. Overnight, consumers see a 40 percent price increase. The only beneficiary is the American company.

In the long run it’s even worse. When domestic companies are protected by tariffs, they have no incentive to innovate. Remember how bad American car companies were in the 1990s? Or how bad American airliners are today? That’s because of government protection. United Airlines doesn’t have much incentive to do a good job because they don’t have to compete with foreign companies on domestic routes. Without competition, there is no incentive to innovate or maximize efficiency. The result is decay. If Turkish Airlines could fly between Chicago and New York, the domestic carriers would have to get their act together real quick. And Biden knows this. We know he knows this because of the following:

The national security argument for tariffs is on stronger ground. It makes sense that no country wants to be beholden to a geopolitical rival. It is reasonable to protect a few crucial industries so that in a crisis America can continue to make the products it needs. To that end, I support the US ban on communication equipment from companies like Huawei. If China had control over our cellular grid or even listening abilities, they could do enormous harm to the United States. For similar reasons, I support the forced sale of TikTok. Giving a foreign entity control over an algorithm that is the source of news and information for millions of people is a terrible idea. For decades, the US, as well as many other countries, has limited foreign ownership of newspapers, TV stations, and other sources of information. TikTok is the ultimate newspaper - it shouldn’t be controlled by a US adversary.

The problem with the national security argument is that it gets applied far too generously. I think one could create a reasonable argument to have tariffs on steel and aluminum from China. But electric cars and batteries? You have got to be kidding me. Electric cars are not necessary for the American economy to function. EVs make up less than 10 percent of the new-car market. This is nothing more than a clear sop to American car manufacturers. The big three auto manufacturers are late to the game (as per usual). Despite decades of warning that the world would eventually move away from oil-powered cars, they have devoted their energies to producing giant SUVs and pickup trucks. That was their decision - it’s absurd to bail them out.

The tariffs on EVs and batteries also stand in direct opposition to Democrat’s position on climate change. In the last 10 years, worries about climate change have reached a fevered pitch. What was once climate change is now a “climate emergency” or “climate crisis”. Smart, respectable people are claiming that climate change represents an existential threat to humanity. If this is true, we need to move as fast as possible away from oil and towards renewable energy. Every American needs to switch to an EV. That means buying them from America or Europe or China or whoever is willing to sell them. Telling Americans that climate change threatens their very existence, but that EVs from China should be subject to a 100 percent tariff, is impossible to reconcile. China, for all its dangers, does not present an existential threat to the United States. Even the most hawkish of China wonks would agree that China does not plan on invading the United States or taking over the world.

Now, I don’t think climate change is an existential threat, either. But the support the left has shown for the China tariffs makes me think the alarmists know that climate change isn’t as bad as they are making it out to be. These tariffs are bad policy. They will raise prices at home for American consumers and make American firms less efficient. They will slow the green transition without protecting the American economy. All to line the pockets of a few chose companies.