President Joe Biden recently announced that he would levy new tariffs on Chinese goods and maintain the tariffs that the Trump administration enacted. Let us leave aside the politics and focus on the impact and purpose of the new tariffs.
The first point that needs to be emphasized is that the new tariffs will have very little impact on either Chinese trade or the broader U.S. economy. The new tariffs accounted for only 4 percent of imports from China last year and only 0.07 percent of total U.S. gross domestic product. When asked if the tariffs would cause inflation, Treasury Secretary Janet Yellen replied that they would not, which is true only because the tariffs relative to trade or economic activity are minimal.
What is more important is the range of goods that President Biden decided to tariff. For a range of goods from electric vehicles (EVs) to medical supplies and steel, the new tariffs do not appear to have any specific theme or focus other than they are goods that, for various reasons, have raised concerns in U.S. industry and government.
For instance, the Biden administration is levying a 25 percent tariff on medical latex gloves from China. In recent years, Chinese imports have held a more than 90 percent market share of these and related medical products. The problem with this excess reliance became obvious during the COVID-19 pandemic, when China, at times, effectively blackmailed the United States. By placing tariffs on Chinese goods, the administration hopes that U.S. and foreign manufacturers will take a greater share of the market.
The administration also levied tariffs on products such as solar panels, cranes installed in ports, and EVs. Although President Biden used a trade law focused on covering unfair trade practices and violations of trade agreements, these products present clear national security risks. For instance, last year, the FBI announced that it had found intelligence-gathering electronics on Chinese-made cranes.
EVs present a similar risk. In my research as the founder of New Kite Data Labs, I have written about the data collected by Chinese-made internal combustion engine automobiles and EVs located inside and outside China. Most people do not realize that modern automobiles and electrical motors are filled with electronic sensors that collect vast amounts of data that monitor and control everything from the operations that are internal and external to the car. This includes such systems as the onboard internet connection, breaks, location, voice activity, and even the external environment, such as obstacles, speed limits, and other data.
The basic hope is that U.S. and foreign manufacturers will purchase competing products from either domestic or non-Chinese foreign producers. However, more is needed from policy than simply tariffing a small range of Chinese products to change the trade and economic environment in dealing with communist China.
For instance, some Chinese firms have built plants overseas, hoping to export the same risky products to the United States from countries such as Mexico, where we have an existing trade agreement. Simply changing the location of manufacturing does not change the risk of the product if it is still manufactured by a Communist Party-controlled firm.
The United States has not prioritized, worked, or allocated the necessary resources to make lasting fundamental changes to economic activity that will present a new vision and change the foundation for the 21st century. This could be prioritizing clean tech standards for manufacturers in allied countries and blocking imports by firms rather than manufactured sources.
At the end of the day, the tariffs by the Biden administration are merely a step in the right direction. They are not the destination. The United States needs much broader policies to take on the China challenge.
