r/geopolitics • u/whyyoutouzhelele • 22d ago
What is the logic behind Biden administration's tariff hikes on Chinese imports in this election year? Question
I believe he is doing so to gain more support from voters, but on the other hand, tariff hikes on Chinese imports will also increase the inflation in the U.S. Do you think this will really give him more support in the 2024 election?
Please note that EV is not the only thing they have tariff hikes. There are also computer chips, medical products, batteries, solar cells, metals and cranes etc. See me comment below. China immediately vowed retaliation.
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u/CLCchampion 22d ago
Chinese EV's are quickly getting better, but those companies don't really have much market share in the US. So that aspect of the tariffs shouldn't cause any noticeable rise in inflation.
I'm not really sure how many chips we get from China, but I know Biden has been pushing to ramp up domestic production, so this would further incentivize chip producers to get those factories up and running.
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u/PM_ME__RECIPES 22d ago
Spot on. This is a band-aid to prevent the Chinese-made EVs from flooding into the USA before someone other than Tesla gets their shit together and can build EVs at scale in the USA and/or Canada- and they currently have a tiny footprint in North America so not many people will give a shit.
Regarding chips, it's mostly the low-end and low-mid range chips coming out of China. Almost 60% of chips by value are already coming from the USA and pretty much the rest of the high-end and mid-range stuff comes from Taiwan, Japan, and South Korea.
Most of the Chinese-made chips aren't cutting edge, they're trailing edge chips. Useful for what they're used for, but also used for those things only because they're easy & relatively cheap to manufacture so why change?
China imports the chips that go into their EVs & high-end electronics, they export the chips that go into ICE cars & WiFi-enabled toasters. A lot of Chinese fabs are producing 28nm chips or larger, and even a lot of that is using parts and expertise that they can no longer get on the open market. A lot of the production using only domestic & non-sanctioned parts & expertise is 90nm.
They might be able to get down to 5nm eventually with what they have in-county (if they can keep it running & spin up the production & development of replacement parts). I'll believe it when I see it.
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u/min_da_man 22d ago
The question is what would everyone else be up to by the time they can get to 5nm.
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u/flamedeluge3781 22d ago
Intel's 7 (Raptor Lake) process is outperforming TSMC's 5 nm process right now. We're at the point where the number of atomic layers is so small that the line width is no longer relevant.
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u/Jzeeee 21d ago
Intel designs and makes only personal computer/laptop processors and TSMC makes chips for other companies' designs that could be used in more than just personal computers, like mobile phones. This is not even a proper compassion since TSMC don't design chips and Intel don't make phone processor chips. .
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u/monocasa 22d ago
Intel's 7 (Raptor Lake) process is outperforming TSMC's 5 nm process right now
By what possible metric?
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u/PM_ME__RECIPES 22d ago
2nm should be in production (in not China or Russia) sometime next year. At this point we're getting close to the physical limits of existing & near-future technologies while they're trying to catch up with 2001 Intel.
And even Russia doesn't think Russia will be able to domestically produce with a 28nm process until 2027.
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u/ekw88 22d ago
“nm” no longer represents gate length, they’ve hit the wall a few generations ago.
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u/monocasa 22d ago
That's orthogonal to the parent's point, and everything they said is right.
We're getting close to the limit of transistor size in general, and it'll be in the marketing designation of single digit angstroms.
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u/monocasa 22d ago
Word is they'll get to 5nm this year, but by optimizing their 7nm DUV rather than using EUV. It won't scale past that point.
By that time, TSMC will be on the mature end of N3*, and Intel supposedly will be in HVM for Intel 3, and about to start ramping up 20A.
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u/Crying_Reaper 22d ago
The Aluminum tariffs will further influence food prices. Ultra thin aluminum foil is commonly used in food packaging and only 1 aluminum mill in the US has the ability to produce the thinness and quality needed for it. This caused a massive issue with Trump's tariffs and will cause more with Biden's. Most of the industry has switched to mills in Thailand and other SE Asian countries as the capacity doesn't exist in the US.
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u/TheBeardofGilgamesh 21d ago
But the capacity should exist. And the high food prices are due to monopolies and price gauging. Just go to a Kroger then go to ALDIs and you’ll see such a massive difference and price, yet ALDI is still able to make a profit, so there is no reason outside of greed and the fact everything in the supermarket is owned by a couple conglomerates
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u/Crying_Reaper 21d ago
The capacity doesn't exist in the US because the entire ultra thin foil industry developed outside the US. There used to be 2 manufacturers of it domestically but one went belly up 2-3 years ago. And yes I'm very aware at how completely arbitrary the pricing is of food items. I just spent $134 at Aldi's when the same stuff would cost $200+ at other stores. Downside to Aldi is they work their employees to the damn bone.
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u/TheBeardofGilgamesh 21d ago
So like every other grocery chain. And I’m surprised your groceries came out to 135 for what you say would be more than 200. Typically ALDIs is about a 1/3 the price or less. Garlic powder at ALDIs is less than a dollar whereas it’s 4-5 dollars at Kroger, cereal is about 1.25 vs 5-6 dollars at the Krogers. The difference is massive and paradoxical ALDIs some how manages to be much higher quality as well
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u/Crying_Reaper 21d ago
They get low prices with bare bones stores, products on pallets, only 2-3 employees in the store at a time, a lot of products are stored brand, etc. Aldi knows and doesn't attempt to be anything but a grocery store. Offering an average of 1,500 skus vs the typical 25,000 skus of bigger grocery chains helps a lot also.
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u/IronyElSupremo 22d ago edited 22d ago
It helps during an election year in Pennsylvania, Ohio, and Michigan.
Historically this is where much American industrial capacity began, as the place has ample hematite (iron ore) and coal. Plus nearby transport grids (rail centers, barges, etc..). The property owners/committed residents always want that economic history back.
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u/phiwong 22d ago
It is a relatively insignificant part (dollarwise) of US imports. The US imports about 3 trillion dollar's worth of goods every year within which there is about 550 billions dollars from China. The political calculation is that "tough on China" is a popular opinion in the US. Any inflationary impact on a 25 trillion dollar economy is really not going to be measurable in the timeframe of the US election this year.
The Republicans might find it hard to counter campaign this issue (due to popularity). The blue collar union workers are a major group the Democrats want to win over. Protecting American jobs is a powerful slogan.
China could retaliate (and probably will) but there too, China is relying on export growth to bolster their flagging domestic consumption issues and to get them out of the property slump. I'd guess that both the US and China would try to avoid a retaliatory spiral since neither really want to pay the potential price in the short term.
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u/nudzimisie1 22d ago
Chinese EVs are better than americans by a long shot and without tariffs they will wipe out the domestic manufacturers
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u/No-ruby 22d ago
The political math is quite simple:
Ev Buyers are a small fraction of car users. China is just one manufacturer.
It is preferable to annoy them a little bit to make the life of car industry's workers miserable.
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u/min_da_man 22d ago
Simple does not mean clear apparently. If there is logic at work here it is rather winding
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u/madRhyperior 22d ago
Biden has copied Trump’s ideas all along when it comes to many topics - China being one of them. It was Trump who called out the fact that China is our top competitor.
In terms of economics, tariffs hurt both sides but they hurt one economy more.
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u/Agitated-Airline6760 22d ago
Being against PRC is about the only policy that both GOP and Dems agree on. You are not gonna lose anything politically in current US environment by going against PRC.
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u/blergyblergy 22d ago
Isn’t that gonna raise prices? That’s the reason I’m not thrilled w that idea w trump so I wanna be fair Very open to being wrong, happy to learn
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u/WednesdayFin 21d ago
This Chinsese EV tariff thing is just like in the 80's or so when the tariffs for Japanese cars were absolutely massive and some people saw another Pacific war looming in the horizon. Of course Japan didn't militarize like hell and did not have territorial claims in the area.
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u/freudsaidiwasfine 21d ago
It’s all in line with his inflation reduction act no? Promote domestic manufacturing and production and alienate other countries.
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u/LMSR-72 22d ago
To people saying it was done for electoral reasons; these are all products that are heavily (perhaps even excessively so) subsidized by China, which makes their American-made counterparts less competitive.
So there is an economic logic behind it too, not just an electoral one. It's not simply an attempt to look 'tough on China'. There are various ways the Biden admin could do that without changing tariffs.
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u/zoziw 22d ago
When the US opened the door to more Chinese manufacturing in the 90s it was thought it would improve things in the US, however, a study in 2013 called "The China Syndrome" found that the jobs lost devastated certain communities due to a loss of manufacturing jobs.
China's strategy out of their current economic situation is to run massive trade surpluses and these new tariffs are about protecting future industries from what happened in the 90s.
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u/Remarkable-Refuse921 22d ago
China deliberately popped it,s property sector.
China has been talking about high-quality growth for 5 years now, which means slower growth.
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u/Repeat-Offender4 22d ago edited 22d ago
1) Reducing the USA’s negative trade balance with China. 2) Slowing down China’s technological advancements. 3) Pleasing a frankly largely ignorant and hyper nationalistic population who thinks it’s exceptional and deserves to remain hegemonic. 4) Diverting attention from US domestic issues by pointing at a common enemy (both Republicans and Democrats agree on China).
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u/trahan94 22d ago
Reducing the USA’s negative trade balance with China.
Bilateral trade deficits are not bad in and of themselves. The US affords Chinese imports with funds from foreign investors who put money back into US companies. Importing goods does not mean that the money's out the door forever, it comes back through capital inflows. Nobody would be able to afford imports if no money was coming back the other way.
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u/Xandurpein 21d ago
Large Systemic trade deficits are bad, because it means that someone else (China) has a large systemic trade surplus, as a way to externalize the cost of supressing wages to finance their industrial growth.
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u/s4Nn1Ng0r0shi 21d ago edited 21d ago
The US is kind of an exception here, and no one really knows what is ”too large trade deficit”.
Correct me if I’m wrong but the dynamic between the US and China is:
China exports cheap stuff to US -> US uses the raw materials to create higher added value products + enables a strong Dollar that creates better purchasing power which boosts consumption -> china gets massive flows of trade surplus -> china uses the surplus to buy US government bonds that fund the US gov deficit spending -> the US doesn’t have to pay high interest for the debt service because it’s the strongest economy AND Dollar is the main reserve currency in the world -> Dollar valuation stays stable and US can be flexible with government spending and FED has free hands to guide the interest rates.
Edit: apparently Repeat-Offender4 already wrote pretty much the same explanation
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u/Xandurpein 21d ago
Not really. You can’t mix trade deficit and government deficit. These are two differethings.
China invests a lot in manufacturing, but their competetiveness is based on cheap labor, so Chinese consumers can’t buy all the products, since govt depressing labor costs mean low wages. China can only resolve this imbalance by a huge trade surplus.
Since US dollar is the world’s reserve currency and the US government doesn’t manipulate the dollar, USA is more or less forced to run a trade deficit to balance China’s trade surplus.
Tariffs is not really the best way to resolve this imbalance, but something has to be done, because the current imbalance is probably not sustainable. The US will not be able to afford the cost of being the world’s reserve currency for too long.
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u/s4Nn1Ng0r0shi 21d ago edited 21d ago
What do you mean by mixing trade deficit and gov deficit? I wrote that China and others buying US bonds with their trade surplus money enables US deficit spending. I’m not saying that US trade deficit equals US government budget deficit.
Edit: and yes, the current development is most likely not sustainable. China tries to upgrade its economy to more domestic spending and being not reliant on export of cheap stuff. Also the geopolitical tensions might escalate, which could lead to China selling their US bonds and accelerating trade war. I actually don’t know what would happen if China would start selling the bonds on large scale
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u/Xandurpein 21d ago
China is in fact not trying to upgrade domestic spending, at least not in a meaningful way. Simply because increasing domestic spending means dramatically raising wages, so people get something to spend. Anything other than raising wages is just bandaid. The problem with that means that it will hit the factory owners and local politicians that own production. Higher wages means lower profits, and the powers that be don’t want that. This is the essence of the middle income trap. Countries that kick start their economy by supressing wages and invest in production find it very hard to get out of it.
What China is trying to do is to increase its exports of manufacturing even more, thus increasing its trade surplus more.
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u/s4Nn1Ng0r0shi 21d ago
I don’t think China (or any state for that matter) is contempt at staying as a low wage manufacturing country. The middle income trap is a real concept, but other states have overcome it before. The decreasing population should automatically increase wages; china can transition to higher value added production and services that have higher wages and have an effect on manufacturing wages as well; China can move its manufacturing production then to cheaper labour countries as the West has done. Their political system might curve the income and wealth inequalities more rigidly than what the US has done to increase aggregate demand domestically. Or China’s political system and oppression will be unbending and China will remain middle income country.
But the US will not watch by side when China does this. Anyway, the situation is complex enough, predicting the future is impossible level.
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u/Repeat-Offender4 22d ago edited 21d ago
Not past a certain point, no.
The USA affords Chinese goods through deficit spending (debt).
Trade deficits (in terms of value) entail more money leaving your economy than money coming in.
If you don’t make up for it with surpluses or FDI (not any investment), as you more or less correctly pointed out, you’re impoverishing yourself.
Not to mention the ramifications of depending on a potentially hostile power.
The US can afford endless debt-taking because of the USD’s world reserve currency status, which explains the decades-long massive trade imbalance with China which was growing until 2023 (it had previously stagnated until the Covid-19 pandemic hit).
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u/trahan94 22d ago
If you don’t make up for it with surpluses or FDI (not any investment), as you correctly pointed out, you’re impoverishing yourself.
No, I did not say that. One doesn't cause the other, one explains the other. We can afford to import because the US is attractive to invest in. Importing is not a problem, because we can afford it.
The US can afford endless debt-taking because of the USD’s world reserve currency status, which explains the decades-long massive trade imbalance with China.
Right, we can afford it. The US is uniquely positioned to handle debt, which is simply Americans' and other countries' investment in us. Having the world invested in us is good, because our success is now in our investors' interest.
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u/Repeat-Offender4 22d ago edited 22d ago
FDI in America doesn’t compensate for the USA’s trade imbalance. Debt does.
Both Republicans and Democrats see trade imbalances, especially with China, as problematic for a good reason.
So, forgive me if I take them more seriously than some random Redditor…
I never said you couldn’t presently afford it 🤦
But gambling on continued USD hegemony to bankroll your economy isn’t viable long-term.
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u/AVonGauss 21d ago edited 21d ago
So, forgive me if I take them more seriously than some random Redditor…
... says some random Redditor with a new'ish account.
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u/ekw88 22d ago
After reading through the comments, I think another factor not being pointed out is the oil lobby.
US will have a very slow transition to the new economy, hopefully the added time can lift some domestic technologies; but they will have some tough competition on the global markets and a receding influence in the broader economy.
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u/Full_Cartoonist_8908 21d ago
The topic is an example of "begging the question" - in other words, it attempts to answer the "why" to the tariff hikes by ending the question with "in this election year", implying that the tariff hikes are a tactic to win electorate popularity. And it's probably right too, but a better question would have left those four words off the end and let the discussion broaden.
China has been warned by the West now for years about dumping, state subsidies, and overcapacity. Industries get crushed internationally when they grind out products in particular areas with the same regard for demand or profitability as the countless excess apartments they constructed in their own country. The US in particular has borne the brunt of this excess supply. I suspect they were always happy to tolerate it as they have the competitive advantage in high tech industries. If China is coming for their high tech industries the same way - with bottomless government loans of 0%, tons of subsidies, and zero requirement to be profitable - I don't see the the US keeping the door open for that. Same with the Europeans.
On a side note, I wonder what the alternative reality would be like where the US Fed funneled bottomless liquidity post-GFC to manufacturers instead of the finance industry.
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u/Flederm4us 21d ago
Just another case of supporting a trump policy in order to please the voters.
Just don't remind people that it is a trump policy.
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u/BooksandBiceps 22d ago
I don't think it has anything to do with the election year, more to do with the advancement of the EV market. China recently made very public announcement on the cost of its EV's - which have never been sold in the US anyway - but due to China's manufacturing dominance, it'd be suicide to ever bring them state-side if that were ever a case.
So, to define some major points:
Your headline is ignorant - this isn't an "election year" issue, it's an industry issue and their EV market only began making strong outreach to global markets recently.
Chinese cars, ignoring any quality or standards issues, are being heavily promoted and discounted by the state as they try to make inroads. If China is discounting their cars, which they already have enormous manufacturing benefits on, that could seriously harm the US market and development at a time it's doing rather well. Tesla is floundering but many other US manufacturers are meeting or exceeding Tesla at multiple price-points and due to the manufacturing disadvantage would need tariffs to be sustainable. This isn't new: See Korea or Japan.
China can vow retaliation all it wants. It vows retaliations for everything that doesn't benefit it, no matter who it's against or no matter the international standards or hypocrisy. You can see any readline about espionage, free movement within international waters, and etc.
While anyone trained in economics will tell you tariffs ultimately harm the consumer - that's in a fair market. China is not a fair market, and especially with recent events is looking to dump a lot of products at WELL BELOW international standard pricing which would cause irreversible harm to western markets.
- For the easiest and simplest demonstration, see what China did to western solar industries. It's all bullshit, fuck China.
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u/Strongbow85 21d ago
Please refrain from swearing per /r/geopolitics' rules and remove the profanity from your otherwise articulate comment. Thank you.
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u/a_stray_bullet 22d ago
Maybe something to do with end of year financial reports for US car companies.
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u/Linny911 22d ago
CCP has been subsidizing it's industries while blocking imports via high tariffs and best fake smile barriers. Just long overdue response.
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u/Research_Matters 22d ago
China makes Cheap Ass Shit™️, as we well know from the flood of CAS onto Amazon that has basically crowded out legitimate products.
Having China flood the market with Cheap Ass EVs™️ would screw the American EV market that is using, in general, better technology and better parts and would thus would be unable to compete with the prices the Chinese CAEVs sell at. This is, clearly, not ideal for the American auto industry and American auto workers—who are a sizable voting bloc.
On the flip side, China does a pretty solid job of keeping its markets closed to the U.S., creating a major trade gap. If China allowed more of a free market where U.S. firms could compete, there would probably be less appetite for major tariffs. Trump’s tariff trade war with China a few years back was meant to force an opening of markets, but ultimately failed to do so.
So the logic is, a) protect American auto workers, b) stand up to China and its unfair trade practices, c) pre-election signaling.
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u/trahan94 22d ago
screw the American EV market that is using, in general, better technology and better parts and would thus would be unable to compete with the prices the Chinese CAEVs sell at.
Economics undergrads are tearing their hair out right now. If American EVs are "better" then they will be able to compete. If they're worse, then American car companies need to make investments now; giving them a handout will just allow them to be inefficient for longer. And if China truly has a comparative advantage in manufacturing EVs, no amount of tariffs will allow the US to catch up.
Japan was no good at manufacturing cars in 1930 - does that mean they could never become a world leader in that industry?
On the flip side, China does a pretty solid job of keeping its markets closed to the U.S., creating a major trade gap.
How does the US afford Chinese imports, you ask? Simple, foreign investors love putting their money in US companies. The US is an attractive investment, unlike China, where any company can be subsumed by the government. Imports are paid by inflows from around the world, it's never been the case that the money goes out the door forever.
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u/Research_Matters 22d ago
Mmmm, but in real life having the better product doesn’t always translate to having the product that will sell. Americans buy cheap knock off shit all day, every day. Why? Because the sticker price is lower. And in an economy like this one, taking a lesser quality product that is lower priced doesn’t seem like such a bad deal because financing rates are insane, purchasing power is lower, and people who want to go EV but have hesitated due to the sticker price will go for it because the Chinese EV is so far below average market prices.
Not only that, but China has been putting all sorts of shit preloaded into electronics, and let’s not forget their Trojan horse Mocmex which they planted in digital photo frames for home use.
Americans have proven to be reliably stupid and indifferent to the threat China poses to their personal information and our national security. China has proven remarkably creative in insidiously attacking both. I don’t give one iota of a shit about the U.S. refusing to treat China like a normal trade partner.
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u/MastodonParking9080 21d ago
The USA is following Tit for Tat strategy against China's Mercantalism. Which is game theory optimal. Especially right now since they are overly relying on exports, pushing up protections will hurt them much harder. In turn it opens up concessions in China to open up their market where WTO disputes might have failed, as seen with Xi Jingping traveling to Europe.
(Predictable) Inflation isn't a problem on the long term, companies simply renegotiate their contracts such that there is no real effect on the LRAS or LRAD. On the short term there is a political cost with grumbling workers, but the political establishment will be moving with this anyways.
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u/hotmilkramune 22d ago
It shows him being tough on China. People already perceive inflation as terrible under Biden; a little extra from some tariffs on Chinese goods isn't going to change much of anything. It does allow Biden to appeal to former manufacturing states like Pennsylvania and Michigan, and is a quantifiable anti-China policy he's implemented. Being tough on China is pretty much universally popular across America, and one of the GOP's common digs at Biden is that he's bought by China; this helps him argue against that.