Thursday, February 22

New US solar and electric car factories face a familiar challenge: China

The Biden administration has begun pumping more than $2 trillion into U.S. factories and infrastructure, investing vast sums to try to strengthen American industry and fight climate change.

But the initiative faces a familiar threat: a wave of cheap products from China. This is drawing the attention of President Biden and his aides, who are considering new protectionist measures to ensure American industry can compete with Beijing.

As U.S. factories ramp up to produce electric vehicles, semiconductors and solar panels, China is flooding the market with similar goods, often at significantly lower prices than American competitors. A similar flow is also hitting the European market.

American leaders and officials argue that China’s actions violate global trade rules. The concerns are spurring new calls in America and Europe for higher tariffs on Chinese imports, potentially escalating what is already a contentious economic relationship between China and the West.

Chinese imports reflect a surge that undermined the Obama administration’s efforts to boost domestic solar manufacturing after the 2008 financial crisis and forced some American startups into bankruptcy. The administration responded by imposing tariffs on solar equipment from China, sparking a dispute at the World Trade Organization.

Some Biden officials fear that Chinese products could again threaten the survival of U.S. factories as the government spends vast sums to revive domestic production. Administration officials appear to increase tariffs on electric vehicles and other strategic goods from China as part of an overhaul of taxes that former President Donald J. Trump imposed on China four years ago, according to people familiar with the matter . That review, ongoing since Biden took office, could finally be concluded in the coming months.

Congress is also moving for greater protections. In a Jan. 5 letter to the Biden administration, bipartisan members of a House committee expressed concern about China’s semiconductor invasion of the United States. Lawmakers asked whether the government could establish a new “component” tariff that would tax an imported chip inside another finished product.

This followed a November letter in which members of the same committee advised the Biden administration to consider a new trade case over Chinese subsidies for electric vehicles, which could result in additional tariffs on cars.

U.S. Trade Representative Katherine Tai told lawmakers she shared concerns about China’s electric vehicle practices, according to a Jan. 4 letter shared with The New York Times. Ms. Tai told the committee that the administration must “work with U.S. companies and unions to identify and implement additional responses to help overcome China’s state-directed industrial goals in this sector.”

The United States has maintained tariffs on hundreds of billions of dollars of Chinese products for the past five years, seeing it as a way to offset Beijing’s ability to undermine American manufacturers by selling cheaper products to the United States. Biden has sought to further help American companies with billions in subsidies intended to boost U.S. production of clean energy technologies such as solar panels and electric vehicles along with semiconductors.

However, China’s spending on industrial policy is still far higher than that of the United States. Faced with an economic slowdown and the gradual bursting of the real estate bubble, the Chinese government has recently redoubled its efforts to promote exports and support the industrial sector.

Beijing is particularly focused on investing in strategically important high-tech products, such as electric vehicles and semiconductors, said Ilaria Mazzocco, a senior researcher on Chinese economics and trade at the Center for Strategic and International Studies, a Washington think tank.

“These are also the types of industry that the rest of the world wants, too,” he said.

Part of China’s success comes from its larger market – which gives Chinese companies the reach and opportunity to refine their products – along with its vast pool of talented engineers. For example, China sold about 6.7 million fully electric vehicles last year, compared to about 1.2 million units in the United States.

The Chinese government has said it competes fairly and has described U.S. trade measures as protectionist.

But Wendy Cutler, vice president of the Asia Society Policy Institute and a former trade negotiator, said China’s clean energy and semiconductor industries have received a lot of state assistance, in the form of tax credits, access to cheaper energy and injections of capital.

“The list goes on and on,” he said. “As Chinese companies make use of these types of systems, it only leads to excess capacity.”

In the United States, when the supply of solar panels exceeds demand, factories shut down lines, lay off workers and try to bring capacity back into line, said Michael Carr, executive director of the Solar Energy Manufacturers for America Coalition, which represents the United States. solar energy producers.

“That’s not how it works in China,” he said. “They just kept building and building and building.”

China invested more than $130 billion in the solar sector last year and is positioned to bring enough wafer, cell and panel capacity online this year to meet demand, according to analysts at Wood Mackenzie, an energy research firm. annual global until 2032.

Late last month, two U.S. companies launched a legal challenge to a temporary moratorium the Biden administration had imposed on tariffs on imported solar panels.

China’s massive investments in semiconductors, including a new $40 billion fund to support the industry, also worry companies investing in new U.S. chip plants.

China accounts for a small share of global chip production: only about 7% in 2022. But experts say the country is spending more on the semiconductor industry than the United States and Europe combined, and that it could become the most largest chip manufacturer in the world. over the next decade.

Dan Hutcheson, vice president at research firm TechInsights, said the fear is that China will do for semiconductors what it did for shipping, solar cells or steel: build up excess capacity and then drive foreign competitors out of business .

“It’s a legitimate fear, because the weakness of Western companies is that they have to be profitable,” he said.

The United States can – and does – impose tariffs on Chinese exports that are unfairly subsidized or sold in the American market for less than the cost of production. This month it slashed tariffs by more than 120% on Chinese steel.

But even when Chinese goods are blocked by the United States, they can flow to other countries. This pushes prices globally toward levels that U.S. companies say they can’t compete with, and pushes American companies out of foreign markets, cutting into their revenue and competitiveness.

Some argue that the United States should simply adopt low-cost Chinese-made solar panels and legacy chips, instead of imposing tariffs that raise costs for American consumers and factories that use imported inputs.

Scott Lincicome, a trade expert at the libertarian Cato Institute, said it didn’t make economic sense for the United States to try to outspend China, especially on goods that aren’t military-related.

“The correct answer is do we give our subsidies? Or do we need to be a better economist and say, “Actually, we’re just going to let foreign governments subsidize our consumption like crazy, we don’t really care”? said Mr. Lincicome.

But most Washington officials now see China’s dominance of key markets as a significant risk, given rising tensions between the countries and China’s imposition of some export bans. China produces about 80% of the world’s solar panels, nearly 60% of electric vehicles, and more than 80% of electric vehicle batteries.

According to Dunne Insights, an electric vehicle market research firm, the average price for an electric vehicle in China is about $28,000, compared to about $47,500 in the United States. In the fourth quarter of last year, Chinese automaker BYD delivered more electric vehicles than Tesla for the first time.

Chinese electric vehicles have become increasingly popular in Europe, prompting the European Union to launch an investigation into illegal subsidies. So far, Chinese electric vehicles have yet to gain a foothold in the United States, which imposes heavy tariffs on such imports.

Under the climate bill Biden signed in 2022, buyers of electric vehicles purchased and assembled primarily in the United States, rather than China, will also receive lucrative tax credits. However, some officials worry that Chinese vehicles are generally so cheaper than American alternatives that consumers may still choose to buy them.

Keith Bradsher contributed reporting from Shanghai.