Treasury Secretary Janet Yellen went to Beijing earlier this month. Acting for the Biden administration, her goal was to thwart Beijing’s clear efforts to dominate global manufacturing of green energy products, especially electric vehicles (EVs).
The issue has already gained elevation in China’s complaint to the World Trade Organization (WTO) about Washington’s subsidies for green energy products built into America’s Inflation Reduction Act. As a kind of riposte to Beijing’s complaint, Ms. Yellen asked Beijing to restrain its global ambitions on this front or face U.S. tariffs on Chinese-made EVs, batteries, and other EV components. Since it is highly doubtful that Beijing will bow to her request, the tariffs look likely.
Attitudes within the Biden administration have changed drastically over the past few years. President Joe Biden entered the White House highly critical of his predecessor’s punitive tariffs on Chinese products entering the United States. Ms. Yellen showed special concern over the restraints on trade implicit in those tariffs. But in a relatively short order, the then new administration endorsed the Trump tariffs. U.S. Trade Representative Katherine Tai described them as the best way to pressure Beijing to ease off some of its more burdensome trade practices, such as patent and copyright, and its insistence that Americans and other foreigners operating in China have a Chinese partner with whom they must share their technology and trade secrets.
That was how matters stood early in the administration. In the last 12–18 months, Washington has stepped up the pressure, with the subsidies about which Beijing has complained to the WTO, restrictions on the sale of advanced semiconductors and semiconductor manufacturing equipment to China, and restrictions on American investments in Chinese technology.
Now, additional tariffs—this time on EVs—threaten to follow those instituted by the Trump administration in 2018 and 2019. At the same time, Congress is considering legislation to ban TikTok from the United States or force China to divest itself of ownership in the company’s American operation.
Ms. Yellen’s request for voluntary restraint will likely get very little traction among her counterparts in Beijing. Chinese leader Xi Jinping and Premier Li Qiang have made Chinese dominance in the manufacture of EVs a pillar of their economic plans, which also includes dominance in artificial intelligence, materials (particularly rare earth elements), and hydrogen power, among others. In a very high-profile way, they have outlined these goals to their colleagues in government and the Chinese people, most recently to the Communist Party faithful at the annual “Two Sessions” conference. For them to yield to Ms. Yellen’s request would undermine Beijing’s stated economic strategy, Xi’s authority in the nation, and, more importantly, within the Chinese Communist Party (CCP).
There is a chance that even if voluntary restraint is denied, Washington will hold off on the threatened tariffs. The Biden administration had backed away from economic and diplomatic threats before this. But chances are this would not be one of those times. The White House would have little trouble getting such legislation through Congress, which has already shown considerable anti-Chinese animus. Such an action would also fit nicely with plans within the European Union to impose tariffs on Chinese-made EVs in response to its complaints that China unfairly subsidizes EVs presently flooding European markets. If Europe were to act without an American tariff, it would leave the North American market a vulnerable target for Chinese sales.
The Biden administration also has a political motive for acting on tariffs now. Because presidential candidate Donald Trump has already promised to impose tariffs should he win the November election, a new Biden tariff now would dilute the issue of Chinese sales in the election.
Against these considerations, it would seem to be a good strategy for Beijing to forestall the tariffs by making promises to Ms. Yellen, even if Xi and the CCP had no intention of keeping them. It would not be the first time Beijing did something like that. Wise strategy or not, such a gesture would fly in the face of other needs in the CCP, especially Xi’s need to continue appearing like a competent leader, making the road to U.S. tariffs on Chinese EVs one that Washington will likely travel.
