explainer
The (kind of) new China tariffs
What you need to know about the most recent round of trade barriers imposed by Washington.
Let's go
Share this explainer
Why this is important
What this means for you
For many businesses, the policy decision will mean seeking out alternatives to China as a source of supply or creating supply chain redundancies. Many businesses have already engaged in nearshoring – the establishment of manufacturing bases in Mexico and/or Canada – while others have retained overseas production in countries neighboring China, such as Vietnam, Thailand, Malaysia, Bangladesh and others. However, increased scrutiny by U.S. customs means businesses must be vigilant to ensure significant transformation has occurred in these countries if they are to avoid the Section 301 duties and other potential fines and penalties.
On May 14, 2024, the U.S. government released its long-awaited review of the Section 301 tariffs against Chinese imports. The 25% tariffs – instituted by the Trump administration in 2018 on the grounds that China was engaging in unfair trade practices through government subsidies and post-overproduction market dumping – have significantly raised the costs of using China as a source of supply. Importers of goods from China have long awaited a review of the tariffs in hopes the Biden administration would do away with them as a means of easing inflation. Instead, the administration has doubled down, raising the tariff rate on several cleantech and medical products while maintaining the existing 25% rate for the remainder. That means a continuation of elevated landed costs for importers and even higher costs for those importing the review’s targeted products. In some cases, the tariffs are deferred to 2026; in others they’ll be implemented within a few months.
The long and short of it
Toggle to learn more
What you need to know
CHIPS and Science Act
Section 301
Inflation Reduction Act
Nearshoring
Section 232
Lingo you need to know
Click to learn more
The Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science act was enacted in 2022 by the U.S. government in response to industrial gaps identified during the COVID-19 pandemic that threatened U.S. economic and national security. The act provides $280 billion in public funding to go toward research, development and manufacturing of semiconductors critical to the country’s tech sector, as well as tax credits of 25% on equipment required for the manufacturing of semiconductors. The act was established to reduce U.S. reliance on foreign chip makers and to challenge China’s growing hegemony in semiconductors.
Section 301 of the Trade Act of 1974 was a rarely used provision that was unearthed by the administration of Donald Trump in 2018 to impose tariffs on goods entering the U.S. from China. Initially, the tariffs were imposed on a specific subset of goods, but the administration eventually imposed the tariffs on all goods after Beijing refused to capitulate to certain demands by Washington with respect to its trade practices. Washington argued the tariffs were necessary to discourage U.S. businesses from relying on goods manufactured in China, which it argued was engaging in unfair market practices, intellectual property theft and other practices that caused undue harm to U.S. businesses and commerce.
Despite its name, the IRA has less to do with fighting inflation and more to do with decarbonizing the United States as it moves to meet its climate action commitments. The IRA provides $370 billion in government funding toward lowering energy costs, incentivizing private investment and strengthening supply chains. The Act has been a point of contention with key trading partners, including Canada and the European Union, both of which argue the Act unfairly disincentivizes the purchase of non-domestic vehicles by limiting tax credits to electric vehicles assembled in North America.
Nearshoring is the act of moving production away from locations in the far east to locations nearer to the United States, namely Mexico or Canada. Nearshoring has been a boon for both of America’s neighbors and has spurred massive investment in manufacturing in Mexico, which has now replaced China as the U.S.’s largest trading partner. However, it has also driven many Chinese companies to set up shop in Mexico as a means of capturing some of the investment capital and has served to compete with Mexican-based manufacturing. This has caught the eye of U.S. administrators who are now taking action to discourage import of Mexican goods that contain Chinese inputs or assembly.
Section 232 of the Trade Expansion Act of 1962 allows the U.S. Department of Commerce to investigate the impact of certain imports on national security and impose restrictions to protect national security. In 2018, Section 232 tariffs were placed on steel and aluminum imported from the EU, Canada, Mexico and others, on the grounds that the U.S. was too dependent on foreign metals required for U.S. military material production. The tariffs were later removed after the U.S. concluded individual bilateral arrangements with the impacted countries. However, the specter of the tariffs’ resurrection looms as the 2024 presidential election nears.
Know the lingo
The Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science act was enacted in 2022 by the U.S. government in response to industrial gaps identified during the COVID-19 pandemic that threatened U.S. economic and national security. The act provides $280 billion in public funding to go toward research, development and manufacturing of semiconductors critical to the country’s tech sector, as well as tax credits of 25% on equipment required for the manufacturing of semiconductors. The act was established to reduce U.S. reliance on foreign chip makers and to challenge China’s growing hegemony in semiconductors. The Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science act was enacted in 2022 by the U.S. government in response to industrial gaps identified during the COVID-19 pandemic that threatened U.S. economic and national security. The act provides $280 billion in public funding to go toward research, development and manufacturing of semiconductors critical to the country’s tech sector, as well as tax credits of 25% on equipment required for the manufacturing of semiconductors. The act was established to reduce U.S. reliance on foreign chip makers and to challenge China’s growing hegemony in semiconductors.
Nearshoring is the act of moving production away from locations in the far east to locations nearer to the United States, namely Mexico or Canada. Nearshoring has been a both for both of America’s neighbors and has spurred massive investment in manufacturing in Mexico, which has now replaced China as the U.S.’s largest trading partner. However, it has also driven many Chinese companies to set up shop in Mexico as a means of capturing some of the investment capital and has served to compete with Mexican-based manufacturing. This has caught the eye of U.S. administrators who are now taking action to discourage import of Mexican goods that contain Chinese inputs or assembly.
The Section 301 tariffs remain largely unchanged, but a select group of products from the cleantech sector and medical equipment have been caught in the sights of the Department of Commerce. In some cases, the tariff introductions or increases are symbolic in nature and negligible in impact. In other cases, they are significant to importing businesses and the consumers they service. The overarching goal in raising the tariffs is to protect U.S. industry against below-market priced goods being dumped on global markets by overproduction in China subsidized by the state.
What’s being tariffed at a higher rate?
Electric Vehicles
Lithium-ion Batteries
Semiconductors
Ship-to-Shore Cranes
Solar Cells
Surgical Gloves
Syringes and Needles
0
25
50
75
100
New Tariff Rate
Old Tariff Rate
A deeper dive into the new tariffs
Steel
Batteries, Battery Components and Parts, and Critical Minerals
Medical Products
The tariff rate for steel from China will increase from between zero and 7.5% (depending on the steel type) to 25%. The increase is an extension of the protection laid out during the Trump years to limit the supply of low-cost steel coming into the U.S. to compete with domestic manufacturers. The Biden administration’s contention is that China’s non-market practices are resulting in over-production of steel and aluminum that is then being dumped on world markets and competing unfairly with U.S. manufacturers. Moreover, the administration argues the steel and aluminum being produced in China is among the most carbon-intensive in the world and, therefore, counteracts the goals of the IRA. While China accounts for about 10% of the world’s overall steel production (30% of which is produced by State Owned Enterprises (SOEs)), steel imports from China make up only about 1% of total steel imports into the U.S. As such, the tariff hike will have a negligible impact on U.S. commerce and is more of a symbolic move to demonstrate action is being taken to challenge China’s growing economic influence.
The undersupply of semiconductors became acutely apparent during the COVID-19 pandemic. Carmakers had forfeited their contracts with suppliers in anticipation of withering demand and were later unable to secure the critical microchips to produce vehicles once demand was on the rise again. The result was massive price increases, not only on motor vehicles, but also consumer appliances and medical devices. Washington introduced the CHIPS and Science Act to ensure America was no longer dependent on foreign chipmakers. But China continues to lead the global semiconductor market, representing almost half of new capacity coming online. In response, Washington has doubled the tariff rate on Chinese semiconductors from 25% to 50% in an effort to encourage more domestic manufacturing of the microchips and discourage the purchase of those from China.
While demand for electric vehicles has waned recently due to their cost and inadequate infrastructure to support recharging batteries, EVs continue to be a flashpoint in the global race to corner the clean-energy market. China’s non-market practices has allowed its exports of EVs to soar 70% year over year in 2023. To combat this rise, Washington has announced a quadrupling of the tariff rate on Chinese EVs, from 25% to 100% to prevent undue competition with domestic manufacturers.
America’s dependence on foreign suppliers for critical medical materials, including personal protective equipment (PPE), and basic supplies like syringes became widely exposed in the early days of the COVID-19 pandemic. Since then, the government has looked to incentivize the domestic manufacturing of these items to replace the reliance on cheaper alternatives made in China. To this end, the Biden administration has chosen to increase the tariff rate on PPE from between zero and 7.5% to 25% and on medical gloves from 7.5% to 25%.
Solar energy is a cornerstone of the clean energy sector that the current U.S. administration is keenly trying to build into its domestic economy. Interestingly, China’s solar technology was one of the first to earn the ire of the Department of Commerce and the United States Trade Representative (USTR) back in 2018 when the first round of tariffs was introduced through Section 201 of the Trade Act of 1974 on Chinese solar panels. The tariffs were implemented in response to China’s non-market practices that were called out by the Trump administration for creating unfair competition for U.S. solar-tech producers. The Biden administration has upped the ante by doubling the 25% rate on solar cells (which are the core components of solar panels) to 50%. Investment in U.S. domestic solar technology has spiked in response to the high cost of importing solar panels from China with $17 billion in planned capacity in the pipeline.
New to the tariff list are cranes that move shipping containers off container ships and onto ports. As the vulnerabilities of U.S. supply chains became more apparent during the COVID-19 pandemic, so too did the inadequacies of the infrastructure to support them. In March 2024, the Biden administration committed to putting $450 million in port infrastructure through the Port Infrastructure Development Program (PIPD). Ports are not viewed strictly in the context of supply chain, but also national security. To better secure America’s borders, the administration has introduced a 25% tariff on ship-to-shore cranes to encourage greater domestic manufacturing and consumption, and to reduce dependence on China, an adversary, for these critical items.
Complementing the rise in tariffs on electric vehicles is a spike in the existing tariff of 7.5% on the lithium-ion batteries that power the vehicles to 25% in 2026 (the tariff rate on battery parts is the same but will take effect in 2024). Much like the increased tariffs on EVs themselves, the increase on batteries and their components is designed to challenge China’s hegemony on these materials, which currently stands at about four-fifths of the market. Meanwhile, new tariffs on graphite will be introduced at 25% in 2026 and on other critical minerals in 2024. Washington’s goal is to encourage more domestic production of these items by discouraging imports from China and investing in domestic manufacturing through the IRA and other initiatives.
U.S. companies have hedged their bets against China in recent years as Section 301 tariffs, pandemic-related restrictions and congestion, and the increased cost of doing business in China has made the world’s factory less attractive. But that hasn’t necessarily resulted in the widespread manufacturing renaissance anticipated by the architects of the tariffs. Rather, production has shifted to China’s neighbors or America’s. Mexico has become the U.S.’s largest trading partner and the largest source of imports. China still outpaces Canada, but not by much. Meanwhile, Vietnam, Thailand and India are scooping up their fair share of redundancies in U.S. supply chains. But neither nearshoring nor the China+1 strategy is necessarily all it’s built up to be. Hidden costs and unexpected challenges abound.
Nearshoring and China + 1
U.S. Imports from select countries 2019 vs. 2023
$500,000
$375,000
$250,000
$125,000
$0
China
Mexico
Canada
Vietnam
India
Thailand
2019
2023
A snapshot of trade remedies introduced in the first half of 2018 shows Section 301 tariffs have had the biggest impact by far. U.S. industries have doled out $215 billion in customs duties to bring in goods from China. In many cases, these tariffs served to exacerbate already troubling inflationary trends. In others, they resulted in narrowing profit margins for corporations in price-sensitive industries that simply didn’t have the luxury of passing down the cost to consumers.
Commercial Impact
U.S. trade remedies implemented in 2018
Trade Remedy Enforcement
Imported Products
Total Duties Assessed
Section 201 Duty Assessment
Section 232 Duty Assessment
Section 301 Duty Assessment
Solar Panels
Aluminum
China products
$215.25 billion
$13.40 billion
$4.06 billion
$3.17 billion
Is that it? Mmmm ... not quite.
The Trump Card
The Biden administration may have concluded its long-awaited review of the Section 301 tariffs, but there’s the possibility for more tariffs down the road. Former president and current presidential hopeful Donald Trump has already suggested he would place onerous tariffs of 200% on Chinese EVs coming into the U.S. from Mexico where many Chinese manufacturers have set up shop in recent years to help U.S. importers avoid Section 301 tariffs. Those tariffs may be applied more widely to the 2.6 million vehicles coming into the U.S. from Mexico each year, and not just those made by Chinese companies. He’s also suggested a 10% universal tariff on all imports into the U.S. and an additional and universal spike to the Section 301 tariffs against China to 60%. Much of what might take place will hinge on the actions of a new Mexican president set to take office in June 2024.
With respect to the Section 301 tariffs specifically, there’s still the issue of exclusions. Corporations have succeeded in securing 352 exclusions to the tariffs (and another 77 were issued in response to the pandemic). But these exclusions are set to expire at the end of May 2024, meaning a new lot of tariffs could come into play, impacting the cost calculations for countless U.S. importers. In addition, the process of applying for exclusions is currently undergoing revision and a new process could create additional administrative burden for applicants.
Ending Exclusions?
Lastly, the issue of steel and aluminum is not quite settled. Tariffs may have been placed on imports from China, but Chinese manufacturing in Mexico has been booming, and with it imports in steel and aluminum. That’s likely going to prompt the U.S. government at some point to expand its scrutiny of steel and aluminum moving into the U.S. from Mexico, which is already taking place in the form of anti-dumping and countervailing duties on Chinese aluminum coming from Mexico. Overall relations between Washington and Mexico City will hinge heavily on the direction the new Mexican president will take with respect to liberalizing the energy sector, cooperating on border security and modernizing the country’s labor unions.
Mexican Metal
Aside from duties, what are the other commercial effects?
China isn’t going to take Washington’s move lightly. Reciprocal tariffs are likely to be put in place by Beijing, making exports to China more expensive and less competitive for U.S. businesses looking to capitalize on China’s growing middle class of 400 million. That means less business in China for U.S. companies and more expensive supplies for those doing business in America. The same can be expected against U.S. allies that follow Washington’s lead. There may also be some non-monetary consequences for U.S. businesses operating within China, such as hassle from regulators and tarnished brand reputation amongst Chinese consumers.
Export Pain
Expect to see some global market reaction to the tariffs, especially from America’s key trading partners and allies. The EU is fighting its own fight against China’s economic hegemony, and moved to implement tariffs of up to 30.1% on Chinese EV imports on June 11. There’s a good chance that countries like Canada may follow suit. Even in the event tariffs are applied or raised by the EU against Chinese imports, Chinese companies are likely to set up shop within the EU as they have done with Mexico, or reciprocate with their own tariffs.
Global Reaction
4 Key Takeaways
1
2
3
4
Permanent Fixture
Not just clean tech
More nearshoring
Just a precursor
The Section 301 tariffs aren't going away anytime soon. In fact, they're probably going to grow in scope, so it's best to make them a permanent fixture of your cost inputs.
While most of the new tariffs are related to protecting America's cleantech sector, metals and medical products are also impacted.
More corporations are likely to shift away from China as Washington doubles down on China-origin goods. That's not going to be nearly as easy as it seems.
Disputes in Congress are likely to lead to more tariffs, even ones against key trading partners like Mexico as more Chinese goods flood in through the southern border.
4 key takeaways
Click on tabs below to explore
1 - Permanent fixture
2 - Not just clean tech
3 - More nearshoring
4 - Just a precursor
Not just cleantech
You've just scratched the surface.
Get insights about navigating trade disruption through nearshoring and other strategies.
Learn more
See what best practices in customs compliance look like and gauge whether your practices measure up.
Restart
You've just scratched the surface
See what best practices in customs compliance look like and guage whether your practices measure up.
Learn more about navigating trade disruption through nearshoring and other strategies.
