Tariffs & restrictions: the U.S.-China trade war heats up

Many of us have heard over the past year or so of the trade war between the U.S. & China, with both parties looking to become independent of one another, so what’s happening currently? New waves of tariffs and restrictions have warmed things up recently as both parties tighten their grips at a crucial time for the global electronics supply.

The Biden Administration, while continuing the tariffs broadly imposed by the Trump Administration on many Chinese imports, recently announced stricter measures covering an additional $18 billion in goods from China “to protect American workers and businesses.” These measures included an increase in the tariff rate on steel and aluminium products to 25% from a previous high of 7.5%, and on semiconductors to 50% from 25%.

A more drastic move by the White House was the announced increase in tariffs on electric vehicles manufactured in China from 25% to 100%. This appeared to be intended to prevent a flood of cheap Chinese EVs that was otherwise expected to enter the U.S. market in the next few years.

Additionally, the U.S. Department of Commerce revoked licences allowing Intel, Qualcomm, and other American chipmakers to ship products to China’s Huawei Technologies for use in laptops and handsets. In response, China directed its government offices not to purchase personal computers containing any American-made chips.

Christopher S. Tang, Professor and Edward W. Carter Chair in Business Administration, UCLA Anderson School of Management stated that this action is part of a Chinese government policy aimed at increasing self-sufficiency in the production of high-tech products. “They want to develop their own manufacturing capabilities without depending on the U.S. or even Taiwan.”

China is investing billions of dollars in Semiconductor Manufacturing International Corporation (SMIC), its partially state-owned foundry, to produce its own seven-nanometre chips.

Further evidence of an industrial “decoupling” between China and the U.S., along with other Western nations, includes China’s push for its national airlines to purchase narrow-body planes from the state-owned Commercial Aircraft Corp. of China (COMAC).

Tang stated that these actions by both countries are partly an effort to “derisk” supply chains overly dependent on U.S.-China trade and manufacturing relationships. Many U.S. producers have already begun shifting operations from China to Mexico, Southeast Asia, and India, and, in some cases, back to the U.S.

To compensate for these losses in domestic production, China is establishing manufacturing arms in other countries, often concealing their ownership to avoid duties on Chinese exports to the U.S. This has been seen in solar panel production in Southeast Asia and Chinese-owned auto plants in Mexico, which benefit from duty-free privileges under the United States-Mexico-Canada Agreement. Tang noted, “Who owns the companies gets murky.”

Whether this amounts to a full-on trade war between the U.S. and China is a matter of semantics. Tang observed that businesses are constantly adjusting strategies in response to geopolitical tensions and evolving trade dynamics. “This kind of supply chain restructuring has evolved along with tariffs and trade barriers,” he said. “It’s happened throughout history.”

Regardless, the move toward “decoupling” is unlikely to completely sever the U.S.-China trade relationship. Tang remarked, “Indirect trade through China, behind the scenes, will not disappear.” He emphasised that no other countries currently match China’s manufacturing capacity, efficiency, and scale. Even manufacturers relocating production from China will continue to rely heavily on the nation for essential parts and raw materials.

Overall, the trade war between the U.S. and China will continue on its path and by no means will either side seemingly commit to a full-scale decoupling, instead, they will continue to strain one another to see who emerges on top after the dust settles. Meanwhile, the impact this will have on the global electronics supply will remain profound, at a time where supply chains are continuing to try and heal.