Biden's 'monster tariffs' signal the end of cheap Chinese goods, Plus - for US & China - breaking up is not so hard to do -- China Boss News 5.24.24

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What happened

The Biden administration last week hiked tariffs up to 100% on $18 billion in Chinese imports, including “steel and aluminum, legacy semiconductors, electric vehicles, battery components, critical minerals, solar cells, cranes and medical products,” as CNN reported.

News staff said the new rates will kick in over the next two years.

President Biden made the announcement during a speech describing his administration’s “actions to protect American workers and businesses” on May 14th.

And what a speech it was.

As U.S. Treasury Secretary Janet Yellen, Trade Representative Katherine Tai, United Steel Workers International VP Roxanne Brown, and other leaders from key American industries like solar, semiconductors and car manufacturing looked on, Biden made his pitch to an inflation-weary American public.

“You heard me say it before: Wall Street is important. There are a lot of good folks there, but they didn’t build America.  The middle class built America, and unions built the middle class,” he said.

“I’ve spent a lot of time with Xi Jinping.  Early on, I told him — ‘why am I being unfair to China?’ I said, ‘Look, we’ll play by the same rules if you want.  If you want to do business in China, you got to have a 51 percent Chinese owner, you got to provide access to all your intellectual property, et cetera.  You want to do that in America?’ There was silence.”

“Sometimes they just outright steal through cyber espionage and other means.  And it’s been well-documented and internationally recognized. When you make tactics like these, you’re not competing.  It’s not competition.  It’s cheating.  And we’ve seen the damage here in America.”  

Why it matters

‘End of an era’ for US consumers

News of the mama of all US tariffs would hit the week I moved house. Between tripping over boxes and trying to slap paint on freshly plastered walls, I busted another gut chasing the deluge of analysis gushing from the latest updates. It was awesome. ;)

New York Times’s Jim Tankersley, who has “covered the effects of the China Shock on the American economy across several administrations” - as his byline says - had the most excellent bird’s-eye perspective, calling Biden’s announcement the “end of an era for cheap Chinese goods.”

“For the first two decades of the 21st century, many consumer products on America’s store shelves got less expensive. A wave of imports from China and other emerging economies helped push down the cost of video games, T-shirts, dining tables, home appliances and more.”

“But voters rebelled. Stung by shuttered factories, cratered industries, and prolonged wage stagnation, Americans in 2016 elected a president who vowed to hit back at China on trade. Four years later, they elected another one,” he wrote.

In The Atlantic, Michael Schuman, the author of Superpower Interrupted: The Chinese History of the World, argued that China got its just deserts.

“This souring of trade relations wasn’t always foreordained—but it had become virtually unavoidable. Chinese leader Xi Jinping has failed to reform his economy in ways that would have made this trade war less likely. Facing this confrontation with the United States, he is even less likely to make reforms today. The result is trade conflict and heightened political tensions that benefit no one,” he said.

It’s hard to deny that, though Beijing will undoubtedly try.

And CNN Business’ award-winning journalist Hanna Ziady thought “Biden’s monster EV tariffs could inflame a Europe-China trade war.”

“Washington’s drastic measure piles pressure on the European Union to defend its automakers, which are likely to face even fiercer competition from Chinese EV imports if they’re all but priced out of the United States,” she divined.

And for China producers

Although desperate to stem the tide of Chinese EVs now clogging its major ports - Europe is also looking under the hood for evidence of additional unfair subsidies.

Seek, and ye shall find.

On the same day as the White House’s unprecedented tariff hike, Politico’s Pieter Haeck said “Europe is widening its focus from high-tech to low-tech microchips” and that the “European Commission will start to question microchip suppliers and customers about legacy chips and whether there is a dependency on China supplies.”

The timing is probably not a coincidence.

Biden officials have regularly met with European, NATO, and G7 counterparts over the past six months to discuss the thorniest China issues, like Chinese companies’ funding of Russia’s military-industrial complex, which supports the ongoing war in Ukraine, and best practices for coordinating export controls and investment screening to protect strategic technologies.

On Tuesday, Treasury Secretary Janet L. Yellen told German officials at the Frankfurt School of Finance and Management, that “the United States and Europe needed to work together to push back against China’s excess industrial capacity,” New York Times reported.

“China’s industrial policy may seem remote as we sit here in this room, but if we do not respond strategically and in a united way, the viability of businesses in both our countries and around the world could be at risk,” she warned.

Yellen’s remarks came just ahead of the G7 finance meeting in Italy, where the group’s ministers are preparing “a reproach for China,” according to Reuters.

At the risk of stating the obvious, it’s not a good time for Chinese producers.

China’s economy is already heaving from a property debt crisis spawned by decades of government-fueled speculation, and Xi Jinping has cropped revenues at many of China’s most profitable companies with shady geopolitics.

Over the weekend, Bloomberg reported that “[t]he time it’s taking for some of China’s electric-car makers to pay suppliers is ballooning,” which news analysts attributed to the “nation’s increasingly cutthroat auto market,” and the Wall Street Journal reported that Temu, the wildly successful global e-commerce app, is “under fire” for running afoul of the EU Digital Services Act.

But leave it to Beijing to spin China’s economic descent like a mouthy brawler, while the real heroes—its small-to-medium-sized businesses—spin out.

“What does not kill you makes you stronger,” chief state media outlet Xinhua said in a snotty, Huawei-inspired (and probably authored) commentary on the impact of US tariffs on Chinese tech firms.

In light of the current leadership’s unrelenting “push for global power” driven by the competing interests of today’s China Inc., the survival prognosis looks a bit soon.

This Week’s China News

The Big Story in China Business

BREAKING UP IS NOT SO HARD TO DO: 26 NEW ADDS TO ENTITY LIST, CHINA DIVESTS US DEBT: The US announced last week that it intends to block imports from 26 Chinese firms under the Uyghur Forced Labor Prevention Act Entity List, Wall Street Journal reported.

“The additions dramatically swell the size of the UFLPA list, which along with a change in methodology, brings the total number of banned companies to 65. All the companies named Thursday are part of China’s textile industry, whose dominance has led to complaints of unfair competition from manufacturers stateside,” news staff said.

“We will not allow goods produced in whole or in part through forced labor to enter the United States. We’re shining a light on it,” Homeland Security Secretary Alejandro Mayorkas said in a statement.

Foreign China producers, too: Only days after that news broke, the New York Times reported that a senate inquiry has determined that “BMW, Jaguar Land Rover and Volkswagen purchased parts that originated from a Chinese supplier” that had been “flagged by the United States for participating in forced labor programs in Xinjiang.”

“Both BMW and Jaguar Land Rover continued to import components made by the Chinese company into the United States in violation of American law, even after they were informed in writing about the presence of banned products in their supply chain, the report said.”

“BMW shipped to the United States at least 8,000 Mini vehicles containing the part after the Chinese supplier was added in December to a US government list of companies participating in forced labor. Volkswagen took steps to correct the issue.”

The Senate Finance Committee Chairman, Ron Wyden (D-OR), said, “Automakers are sticking their heads in the sand and then swearing they can’t find any forced labor in their supply chains.”

“Somehow, the Finance Committee’s oversight staff uncovered what multibillion-dollar companies apparently could not: that BMW imported cars, Jaguar Land Rover imported parts, and VW AG manufactured cars that all included components made by a supplier banned for using Uyghur forced labor. Automakers’ self-policing is clearly not doing the job,” he added.

Beijing sells record amounts of US debt: Meanwhile, a recent Bloomberg report revealed that China has “sold a record amount of Treasury and US agency bonds,” which analysts say indicates its commitment “to diversify away from American assets as trade tensions persist.”

“Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium, often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period,” Bloomberg analysts noted.

Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence, said that China’s divesting “both” Treasuries and agency bonds “despite the fact that we are closer to a Fed rate-cut cycle . . . should be a clear intention of diversifying away from US dollar holdings.”

“China’s selling of US securities could speed up as US-China trade war resumes” especially if Trump returns as president,” he added.

As I mentioned last week, China has also been ramping up gold purchases to beat dollar dominance back.

Law and International Xi

NEW CHINA LAW PERMITS DETENTION OF TRESPASSERS IN SOUTH CHINA SEA: “Beijing has fleshed out the Chinese coastguard’s powers to detain foreigners suspected of illegally crossing borders,” in the South China Sea, South China Morning Post reported last week.

The regulations stipulate that “foreigners suspected of illegally crossing China’s borders can be held for up to 60 days,” news staff said.

The new measures were announced after news broke that a “civilian mission from the Philippines” had been tasked with “assert[ing] Manila’s claims near the contested Scarborough Shoal.”

A 10-member party sent by Atin Ito (This is Ours) group managed to evade China’s armada of coast guard and fishing ships, equipped with 76-millimeter cannons, to deliver supplies to fishermen on the island successfully. But “a commercial flotilla of five commercial vessels and 100 small fishing boats” which set sail on the following day were forced to turn back, Reuters said.

CHINA SANCTIONS FORMER US LAWMAKER: Beijing has banned ex-US lawmaker Mike Gallagher from traveling to China and from conducting business or any other activities there, Reuters reported earlier this week.

“Under the sanctions, China could freeze any assets Gallagher might at some point have in the country and ban organizations and individuals there from trading and cooperating with him, the ministry said. It did not go into detail on what Gallagher had said or done,” news staff said.

In a statement seen by Reuters, the former congressman said that “the sanctions showed the Chinese Communist Party (CCP) was ‘perpetually paranoid’ and viewed itself as in a struggle against Western democracy, universal human rights, and freedom of speech as part of what he called the ‘New Cold War.’

“As the CCP attempts to silence defenders of freedom, we should continue to shine a light on the CCP’s growing authoritarian repression at home and aggression abroad and stand firm in promoting the security, freedom, and prosperity of America and its allies,” he added.

Gallagher was arguably the most prolific China hawk in Congress, and has conducted several investigations into businesses linked to forced labor and China’s civil-military fusion policy. As Chair of the newly created House China Select Committee on the Chinese Communist Party, he has sponsored many heavy-China-hitting bills, some of which have now become law.

Although Gallagher was seen as a “rising star” on Capitol Hill, he announced his decision not to run for reelection earlier this year. Time Magazine said MAGA politics was likely the reason.

You’ll quickly find Gallagher’s congressional activities with a Google search, but for some of the better reads, check out these news articles:

‘Certain things require a machete’: House China Committee chair defends approach to Beijing

The House China Select Committee issued its first-ever subpoena as it investigates a Chinese-owned lab in California.

Opinion: Americans are unwittingly financing the CCP. It has to stop.

Geopolitics 

PUTIN RUSHES TO CHINA AFTER XI’S EUROPE TRIP: Russian President Vladimir Putin quickly scurried to Beijing after Xi Jinping’s trip to Europe to undo any harm that might have been inflicted on his ability to wage war in Ukraine.