India has positioned itself on high alert following America’s fresh round of import levies, which triggered a trade war between the United States and China, the largest and the second-biggest economy in the world. With its current population of approximately 1.44 billion with growing country’s gross domestic product (GDP), India has emerged as one of the most important consumption markets in the world, attracting growing interest from global businesses seeking to capture a larger market share.
Since the globalisation of the world economy, every country has become independent for the free trade of goods at prices determined by manufacturers, depending on the cost of raw materials and market sentiment. However, China has adopted a ‘mass manufacturing philosophy,’ with factories out there preferring to stockpile their output, which inevitably reduces the cost of production. This eventually helps Chinese producers sell their products at prices lower than the prevailing market rates in the destination countries, thereby causing injury to local manufacturers and rendering workers unemployed. The United States claims to be a victim of China’s ‘mass manufacturing philosophy’ and has exercised the right to protect the interests of its citizens.
| List of Chinese goods under additional tariffs in the United States |
| Product | From (%) | To (%) | When |
| Steel and aluminium | 0-7.5 | 25 | 2024 |
| Semiconductors | 25 | 50 | 2025 |
| Electric vehicles | 25 | 100 | 2024 |
| EV batteries | 7.5 | 25 | 2024 |
| Lithium iron non-EV batteries | 7.5 | 25 | 2026 |
| Battery parts | 7.5 | 25 | 2024 |
| Batteries – critical materials: natural graphite and permanent magnets | 0 | 25 | 2026 |
| Batteries – critical materials: certain other critical materials | 0 | 25 | 2024 |
| Solar cells (whether assembled into modules) | | | |
| Solar cells (whether assembled into modules) | 25 | 50 | 2024 |
| Ship-to-Shore cranes | 0 | 25 | 2024 |
| Medical products – Syringes and needles | 0 | 50 | 2024 |
| Certain personal protective equipment (PPE) e.g. respirators and face masks | 0-7.5 | 25 | 2024 |
| Rubber medical and survival gloves | 7.5 | 25 | 2026 |
Sources: United States, and Polymerupdate Research
US levyThe bilateral trade dispute between the United States and China is entering a new round after US President Biden announced higher tariffs on Chinese imports worth US$18 billion, which are to come into force between 2024 and 2026. The existing laws permit, the United States policymakers to impose trade sanctions if a trading partner violates the United States trade agreements or engages in acts that are 'unjustifiable' or 'unreasonable' and burden US commerce.
The increase in tariffs follows a four-year review which recommends that tariffs on Chinese products introduced on July 6, 2018, and August 23, 2018, should remain in place, ranging from 7.5 percent to 25 percent on Chinese imports worth some US$370 billion. Overall, the report concludes that while the United States tariffs have been an effective tool in changing some of China’s trade policies, these policies are still a burden on the United States Department of Commerce.
Regarding the effects on the United States economy, the 2018-2019 tariffs did impact United States aggregate economic welfare and real incomes slightly negatively due to less trade with China, while raising prices slightly, on average by 0.4 percent each year. Manufacturing employment or wages did not increase, while investment growth was slightly subdued in the short run. However, the United States production did increase across industries most directly affected by the tariffs, on average by US$25.6 billion between 2018 and 2021.
| Change in total US trade between 2023 and 2027 (%) |
| Country/Region | Export to | Import from |
| European Union | 3.6 | 2.4 |
| Mexico | 0.5 | 2.1 |
| Vietnam | 0.0 | 1.7 |
| Taiwan | 0.5 | 1.0 |
| Canada | (-)0.8 | 0.9 |
| South Korea | 0.1 | 0.7 |
| India | 0.3 | 0.6 |
| Thailand | 0.1 | 0.5 |
| Japan | (-)0.6 | (-)1.1 |
| China | (-)1.1 | (-)7.7 |
Sources: United States, and Polymerupdate Research
Tariff on ‘strategic’ sectorsProducts across seven sectors under the additional tariffs regime are classified as ‘strategic’. These sectors are understood to have been affected by higher Chinese dumping thereby causing injury to the United States manufacturers. However, in order not to damage national solar manufacturing, certain solar manufacturing equipment will be temporarily excluded from higher tariffs (19 items), while over 300 machinery products used in domestic manufacturing are proposed to be included in the Machinery Exclusion Process.
According to a study conducted by ING Economics, “The tariff increases reflect the United States’ priority for onshore strategic technologies and manufacturing. The trade tension between the United States and China will continue regardless of the results of the elections in November. The tariffs on electric vehicles (EVs) may have a somewhat moderate impact on the United States EV market, as Chinese carmakers accounted for less than 5 percent of the EVs sold in the United States last year.” But many of the remaining tariffs, such as those on lithium-ion batteries, critical minerals, and semiconductors, could have a much larger impact on Chinese exports and the United States clean energy market, with possible repercussions elsewhere. Less competition in the United States could strengthen domestic supply chains, but questions remain as to how fast these supply chains can be built up and how fast cost reductions will be for certain technologies.
Investigation underway in EuropeThe United States is not alone to act on China’s unfair trade practices. The US government official had recently visited China to apprise the President Xi Jinping administration in China about the negative impact of cheap Chinese imports into the United States. However, President Biden isn’t alone in his view on unfair trade practices by China. The fear that Chinese electric vehicles could take market share from European producers triggered an intense debate last year over whether to impose additional tariffs in Europe.
In October 2023, the European Union Commission launched a formal investigation into whether Chinese companies are benefiting from illegal subsidies given the surge in low-priced EV imports from China into the EU. Any provisional anti-subsidy duties could be imposed nine months after initiation but no later than 13 months. By November this year, at the latest, final action must be taken. Currently, the Chinese car manufacturers BYD, SAIC, and Geely are under scrutiny, with the EV able to decide respective tariffs per producer.
Alerts in India The imposition of tariffs in the United States may open a floodgate of cheap Chinese products into India that Beijing being the largest trade partner of New Delhi. Over the last few years, India’s import of Chinese goods has increased to the record value of US$125 billion with the trade deficit witnessing at US$100 billion. Analysts hope that India’s existing mechanism could help restrict imports of Chinese goods into the Indian territory.
However, a senior government official stated, “India’s existing ‘institutional mechanisms’ are sufficient to tackle any potential dumping of Chinese goods. China remained India's top import-source nation in FY24, accounting for 15.1 percent of total inbound shipments during the previous fiscal followed by Russia which was a distant second, as per provisional data from the Commerce Ministry. A private think-tank Global Trade Research Initiative (GTRI) in a brief on May 14 warned that India may become a dumping ground for Chinese products such as EVs and batteries, with intensifying attempts by the US to lower reliance on Beijing by raising tariffs on these goods. The think-tank also highlighted the need for India to come up with a China strategy given stagnant exports and rising imports from Beijing. This comes at a time the US and the European Union (EU) have been taking steps to lower reliance on Chinese goods.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
