Vicky Pryce, Senior Fellow, BCU centre for Brexit Studies
Concerns about possible ‘dumping’ of Chinese products has been rising for some time The belief is that in an effort to stimulate the economy after the severe problems in the property sector, the Chinese govt had engineered a sharp manufacturing expansion through cheap loans and other subsidies which left it with many goods, particularly electric vehicles(EVs) which they couldn’t sell to a struggling Chinese consumer. There has also been concern about China’s increasing penetration of other goods markets such as batteries and computer chips amongst others. Janet Yellen’s in her visit to a number of Chinese cities last month had majored on this issue as feared that much of that production was ending up being exported at cut prices, in other words being ‘dumped’ to the West , including the US with harmful impacts on US employment, output, profits and growth. No great surprise therefore that President Biden duly announced increased tariffs on a range of Chinese products on May 14. These include levies on solar panels, up from 25% to 50%, up to 50% on semiconductors , from 7.5% or less to 25%, on certain steel and aluminium products and a sharp jump from 25% to 100% on EV.
The total current value of US imports from China that will be affected is some $18b . Though significant of course, this is arguably rather a small percentage of the $427b worth of Chinese exports to the US in 2023 . But this may not be the end. There could well be additional sanctions against China for what is perceived to be its support for Russia which is continuing and if anything intensifying its war in Ukraine.
The world has of course taken note. The EU, which takes in some 40% of all Chinese EV exports, is in fact actively conducting anti-dumping investigations against three Chinese electric companies. The President of the European Commission, Ursula von der Leyen, has long expressed her concern about the impact of what she perceives to be artificially low priced Chinese electric cars being exported to Europe.
Pressure seems already to be being exerted by the US on the EU to follow suit. The concern in the EU would be even without that pressure that in absence of any action China may seek to flood them- and other countries- with diverted cheap EV exports it can no longer sell easily to the US. And in the UK, the Energy Cabinet Minister, Claire Coutinho also admitted in an interview that she will look hard at whether the country would also impose an 100% tariff on Chinese EVs.
Not that everyone agrees. Germany which still exports substantial quantities of upmarket cars to China is reported to be worried about the tariff route. New Chinese tariffs would harm many German car companies- and many more European firms if Chinese retaliation, already feared, was extended to other sectors. The French are also anxious about continuing with their lucrative exports of cognac to China without any pre-emptive tariffs- to the point where President Macron even raised at his meeting with President Xi’s during the Chinese leader’s state visit to France in early May!.
Trade wars may well intensify if Donald Trump becomes President of the United States in the autumn. But we know that the benefits of free trade include an improvement in competition, higher overall investment and innovation, increased global productivity and efficiency, ,better consumer choice and lower prices than otherwise would be the case. Interestingly, Biden himself before the 2020 US Presidential elections, was castigating Trump for his raising of tariffs at the time, arguing that it would not be the Chinese who would pay those tariffs but the US manufacturer, farmer and consumer through higher prices.
In truth, partly because of the slowdown in Chinese economy and the weakness of overall domestic demand, the need to export that surplus production has meant that China has been effectively exporting deflation to the rest of the world. Perversely if that gets reversed, whatever the political rationale, then short to medium term inflation in many parts of the globe may end up higher than current forecasts suggest, with obvious consequences for interest rates and world growth.
Vicky Pryce is a board member at CEBR, Visiting Professor at BCU and King’s College London, and former Joint Head of the UK Government Economic Service. Her books include ”It’s The economy , Stupid, Economics for Voters’, with Ross and Urwin
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