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Chinese exports threaten Biden’s industrial agenda

Chinese exports threaten Biden’s industrial agenda

President Biden’s multibillion-dollar effort to reinvigorate America’s manufacturing industry and accelerate the transition to cleaner energy sources is colliding with a wave of cheap exports from China, threatening to wipe out the investments and jobs that are at the heart of Mr. Biden’s economic agenda.

Mr. Biden is considering new measures to protect budding industries like electric vehicle production and solar panel manufacturing from Chinese competition. In Pittsburgh on Wednesday, the president called for higher tariffs on Chinese steel and aluminum products and announced a new trade investigation into China’s heavily subsidized shipbuilding industry.

“I’m not looking for a fight with China,” Mr. Biden said. “I’m looking for competition – and fair competition.”

Unions, manufacturing groups and some economists say the administration may need to do much more to restrict Chinese imports if it hopes to ensure that Mr. Biden’s vast industrial initiatives are not overwhelmed by cheaper Chinese versions of same emerging technologies.

“This is a very clear and present danger, as the Biden administration’s industrial policy is largely focused not on traditional low-skill, low-wage manufacturing, but on new, high-tech manufacturing ” said Eswar Prasad, professor at Cornell University. economist specializing in trade policies.

“These are precisely the areas where China has increased its own investments,” he said.

America and China are using large government subsidies to spur economic growth and attempt to dominate what they believe are the most important global markets of this century: technologies intended to accelerate a global transition away from fossil fuels to to avoid catastrophic climate change. .

But their approach to financing these industries differs in important respects. Chinese authorities have poured money into factories, including offering attractive loans from state-owned banks to companies that might not otherwise have survived, to help offset a housing crisis and sluggish domestic consumption. These factories often operate with low-cost labor.

Chinese factories now export goods at prices often much lower than those of their competitors, helping to boost its economy. In some cases, other countries say, Chinese companies sell their products abroad at a loss.

Mr. Biden is also channeling federal money to targeted sectors, hoping to seed innovation and open new paths to the middle class through good-paying jobs. He signed an infrastructure law, an advanced manufacturing law focused on semiconductors and a series of production incentives contained in his climate law, the Inflation Reduction Act. The spending and tax cuts resulting from these laws spurred hundreds of billions of dollars in announced corporate plans for new investments in new factories in the United States.

Some of this aid comes with conditions attached. The administration has conditioned federal money on companies paying relatively high wages or providing child care for workers. Other credits are conditional on factories using components mined or produced in America. Mr. Biden has been banking on his re-election to create more good-paying jobs, particularly union jobs, but some economists have expressed concern that these efforts to change corporate behavior undermine his key industrial policy goals. .

Mr. Biden and his economic team increasingly view Chinese imports as a direct threat to the president’s agenda. They are considering new, higher tariffs on some strategic imports from China and have launched several investigations into Chinese technology, such as software and other components in electric vehicles and other Internet-connected automobiles.

Administration officials are aware of how previous surges in Chinese exports of cheap steel and aluminum hollowed out U.S. manufacturing hubs in previous decades. Although heavily subsidized exports of solar panels, batteries and electric vehicles are helpful in containing inflation and fighting climate change, administration officials say the prospect of job losses and company shutdowns companies is too high, politically and economically.

These competing goals pose a challenge as the Biden administration tries to argue that China should reduce its production of clean energy technologies.

“On the one hand, the Biden administration is doing everything it can to increase consumption of renewable energy products,” said Scott Lincicome, a trade expert at the Cato Institute, a libertarian research center. “On the other hand, it warns China against selling cheap renewable energy products, which would boost U.S. consumption of the very products we are trying to encourage.”

Janet L. Yellen, the Treasury Secretary, chastised her Chinese counterparts for unfair trade practices during a visit to China last week. Administration officials expressed concerns about Chinese manufacturing production on Tuesday, ahead of Mr. Biden’s announcements in Pittsburgh.

“China’s political overcapacity poses a serious risk to the future of the U.S. steel and aluminum industry,” Lael Brainard, who heads the White House National Economic Council, said during a call with journalists. “China cannot export to recover. China is simply too big to play by its own rules.”

Chinese officials have filed similar complaints against the Biden administration. In response to the new investigation into Beijing’s shipbuilding subsidies, Chinese Commerce Ministry officials issued a statement saying that “the development of China’s industries is the result of technological innovation and active participation of Chinese companies to compete in the market” and not from unfair state support.

“We urge the United States to respect facts and multilateral rules, immediately end its bad practices, and return to the rules-based multilateral trading system,” the officials said.

But Americans are not the only ones complaining about the new wave of Chinese exports. European leaders have expressed similar concerns, including German Chancellor Olaf Scholz, who complained about the loss-making of Chinese goods in Europe during an official visit to Beijing this week.

The European Union is carrying out its own investigations into the Chinese imports of electric vehicles, which could ultimately lead to customs duties on these products. The bloc has already implemented a carbon border tax that is expected to hit China, which has looser environmental regulations. The new program will impose duties based on carbon emissions associated with the production of imported goods. Mexico and Brazil are also conducting anti-dumping investigations into China that could lead to new trade restrictions.

Bruno Le Maire, the French Finance Minister, noted on Wednesday that the deficit between what Europe exports to China and what it imports has tripled over the past 15 years and that more needs to be done to standardize the rules of the game.

“Europe needs to show its teeth when it comes to trade and commercial relations,” Le Maire said, explaining that while trade wars would be damaging, Europe should adopt the type of industrial policies that China and the United States have adopted.

“I just want to emphasize the need for Europe to better protect its economic and industrial interests,” he said.

The United States and its allies have struggled in the past to find a coordinated response to the threats that Chinese competition poses to their domestic industries. That could change this time around, said Mark Haefele, chief investment officer of UBS Global Wealth Management. The success of China’s manufacturing exports, he said, could prove to be “a catalyst for a more coordinated response” from the United States and Europe on trade.

The case for tougher protectionism was laid out this week at the spring meetings of the International Monetary Fund and the World Bank. While the fund warned that tariffs posed a threat to the global outlook, top economic policymakers explained why they saw measures to protect their domestic industries as necessary.

“There has been a big increase in investment in the manufacturing sector, and in those sectors, capacity utilization is very low,” Ms. Yellen said of Chinese spending on green energy technologies. “With these subsidies, the amount of capacity exceeds global demand, and is likely to exceed even the next decade.”

She added: “And so, it’s not a level playing field. »

The administration has been under pressure to do more to protect American industry. Senator Sherrod Brown, Democrat of Ohio, who faces a difficult re-election bid, last week called for Mr. Biden’s candidacy. ban Chinese electric vehicles, who are already facing high prices. He called Chinese electric vehicles “an existential threat to the U.S. auto industry.”

Mr. Biden upset Mr. Brown and other manufacturing supporters in 2022 when he declared a two-year pause on existing tariffs on imported Chinese solar panels, allowing more between them to enter the American market. He vetoed a bipartisan bill in 2023 that would have reinstated those rates before June 2024, when the two-year pause expires.

He has also faced pressure to increase tariffs on Chinese components for electric vehicles or other clean energy technologies. Tariffs are currently 7.5% on electric vehicle batteries, but 25% on battery components, said Brad Setser, a senior fellow at the Council on Foreign Relations in Washington and a former adviser to the U.S. representative. trade under Mr. Biden. The lower rate should be increased, he said.

Mr. Setser also noted that China has long directed its subsidies toward companies that manufacture and source from China — and sometimes required those companies to be Chinese-owned.

“In order to build industrial sectors where China has a first-mover advantage and now a cost advantage,” he said, “you have to have an insulated market – and use some of the tools that China has already used. »

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Mattie B. Jiménez

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