President Joe Biden has approved new tariffs on various imports from China under Section 301 of the Trade Act of 1974. Chinese goods that will receive new or increased tariffs include solar panels, semiconductors, steel, aluminum, syringes, port cranes, medical personal protection equipment, and electric vehicles and their batteries.
The White House said that the tariffs are a response to unfair trade practices, such as intellectual property theft, and will help protect American supply chains from overdependence on Chinese imports. Some tariffs increased dramatically, such as the tariff on electric vehicles which will increase to 100% from 25% and steel and aluminum which will increase to 25% from 7.5%. Some tariffs are completely new, such as the one on syringes, now set at 50%.
“I don’t see major deleterious impact for investors or fund managers” as a consequence of these tariffs, says Daniel Gerkin, a partner and expert on trade compliance with Kirkland & Ellis LLP. He says that American importers of the goods in question will bear much of the cost, which could include construction companies importing Chinese steel.
However, the U.S. has had tariffs on Chinese on solar panels “for over a decade,” and the tariffs on electric vehicles “are largely symbolic, since we are not really importing Chinese EVs into the U.S.”
Mehill Marku, vice president and lead geopolitical analyst at PGIM Fixed Income, concurs and says that this “new round of tariffs will not have a material impact on the markets,” due to their small aggregate size and “it’s not like it’s surprising, markets have priced in many of these dynamics.” Marku describes the tariffs as part of a broader effort “to gain greater tech self-reliance and reduce [U.S.] dependence on Chinese supply chains.”
Gerkin laments that the tariffs “are a bit political,” and are partially attributable to the presidential election this year and the importance of some of the targeted industries in battleground states. Since these tariffs are “politically motivated” they tend to be very resilient and “far harder to remove than to impose,” which means investors should not rely on these tariffs being lowered any time soon.
Both Gerkin and Marku warn that a Chinese response is possible, but likely to be limited. Gerkin says that China historically goes after industries that are important to key members of Congress or the party of the president, such as targeting agricultural interests during the presidency of Donald Trump. Marku agrees that a Chinese response will be limited, in part due to the smaller size of this round of tariffs.
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Tags: China, Daniel Gerkin, ESG, geopolitical risk, Kirkland & Ellis LLP, Mehill Marku, PGIM Fixed Income, tariff, Tariffs