U.S. Tariffs on China: Rising Trade Friction Cause for Concern

If trade friction between the United States and China intensifies, the damage to the global economy will be significant. It is hoped that the two countries will refrain from taking excessive measures against each other and seek solutions through dialogue.

The U.S. government has announced a plan to strengthen its punitive tariffs on China, quadrupling the tariff rate on Chinese-made electric vehicles from the current 25% to 100%.

For old-generation semiconductor chips, the tariff rate will be raised from 25% to 50%. For steel and aluminum, the rate will be approximately tripled to 25%. Targets of the punitive tariffs reportedly cover $18 billion (about ¥2.8 trillion) worth of goods in seven areas.

The punitive tariffs will be implemented under Section 301 of the U.S. Trade Act, which states that tariffs can be raised unilaterally with the aim of correcting unfair trade practices of trade partners.

The U.S. government has explained that the reason for the increased punitive tariffs is that China is flooding the global market with low-priced exports, boosting its own growth at the expense of other countries.

U.S. President Joe Biden is competing with former President Donald Trump on protectionist arguments ahead of the U.S. presidential election scheduled for November in an attempt to win the votes of laborers that may determine the outcome of the election.

The main aim of the punitive tariffs is probably to prevent the influx of cheap products from China and demonstrate a commitment to protecting domestic industries and jobs, as part of Biden’s election campaign strategy.

But trade friction should be dealt with in accordance with dispute settlement procedures at the World Trade Organization. There is great concern that unilateral protectionist measures by the U.S. government could exacerbate the conflict. There is a fear that it could lead to a contraction of trade and worsen the global economy.

Last month, U.S. Treasury Secretary Janet Yellen met with Chinese Premier Li Qiang and confirmed the continuation of dialogue. It is essential to persistently continue discussions and make every possible effort to prevent the situation from overheating.

Meanwhile, the view that China’s overproduction is problematic is spreading not only in the United States but also in Europe.

The Chinese government is using massive subsidies to foster the electric vehicle industry and other industries, and products made far in excess of domestic demand are flooding overseas. This is also expected to be a major topic of discussion at this week’s meeting of the Group of Seven advanced nations’ finance ministers and central bank governors.

China’s overproduction is deep-rooted and recurring. Overproduction of steel became a global problem in the 2010s.

China needs to change its policies from ones with a heavy emphasis on investment and exports and shift to well-balanced economic growth led by consumption and domestic demand. This will also likely help curb trade friction with the West.

It is hoped that the two major powers, the United States and China, will be aware that they bear a heavy responsibility for the healthy development of the global economy.

(From The Yomiuri Shimbun, May 23, 2024)