MNI: WTO First Step For China In US Tariff Response - Advisors

China is likely to file a WTO dispute against the U.S. over its move to hike tariffs on Chinese new energy products instead of tit-for-tat retaliation, policy advisors told MNI.

The economic impact of many of the measures announced by U.S. President Joe Biden on May 14, including a 100% tariff on Chinese electric vehicles will be limited in the short term, noted He Weiwen, a former economic and commercial counsellor at the Chinese Consulate General in San Francisco and New York. But, He added, whoever wins the next U.S. presidential election could escalate, potentially imposing import restrictions on new energy products using more than a fixed proportion of Chinese parts.

Chinese EVs and photovoltaic cells accounted for only 0.9% and 0.6% of U.S. imports in March 2024, while market share was about 70% for lithium-ion batteries, He noted. Chinese exporters may accelerate efforts to reroute sales through countries not subject to the tariffs like Mexico and Vietnam, but “this road will become narrower in the future,” according to the former official, also a senior fellow at the Center for China and Globalisation (CCG).

COUNTERMEASURES

The first official response by China, which vowed "necessary measures" to safeguard its interests, is likely to be filing a dispute in the World Trade Organisation, He said, noting the country upholds multilateral rules.

“China must counter-attack, but not necessarily by responding with equivalent tariffs,” he added.

Totaling USD18 billion, the measures accounted for only 4% of U.S. imports of Chinese goods, but the Biden administration targeted frontier industries by increasing tariffs from 27.5% to 102.5% on electric vehicles, from 7.5% to 25% on lithium-ion EV batteries and from 25% to 50% on photovoltaic cells.

“The most effective countermeasure, if any, is to refuse to cooperate with the U.S. in the ongoing EV transformation, as China has all the advantages especially in battery technology,” said Gao Zhikai, vice president at CCG, and chair professor of Soochow University. However, China will not close its market to foreign carmakers including Tesla, he said. (See MNI EM: China Overcapacity Rejected, Cooperation Likely - Advisors)

“China always wants to go the high way rather than the low way,” Gao said, adding that taking the dispute to the WTO was essential.

But while it is unlikely to take any immediate reciprocal retaliation, Chinese authorities are likely to seek ways of “hitting the pain point” of the U.S., according to He. Biden is using the additional tariffs to win over swing states such as Michigan, Pennsylvania, and Ohio where steel and car industries dominate to seek re-election, He noted, adding that lower Chinese imports of soybean and cotton could take away votes in agricultural regions.

SINO-EU RELATIONS

The U.S. tariff move may now encourage the EU to impose high tariffs on Chinese EVs once it finalises an anti-subsidy probe, said Shi Yinhong, director of the Center for American Studies at Renmin University and a counsellor to the State Council.

He Weiwen said the EU will follow its own methodology in its calculation of countervailing tariffs, but noted that its previous investigation on Chinese solar panels in 2012 used countries whose production costs are not competitive with China’s as reference points, he added. (See MNI EM: EU Tariffs On China EVs Seen Higher After U.S. Move)