US-China Trade War Escalates with Semiconductor and EV Battles

The United States is intensifying its trade conflict with China by imposing significantly higher tariffs on various key sectors, including semiconductors, electric vehicles, batteries, and essential raw materials.

This escalation involves doubling the tariffs on semiconductors imported from China from 25% to 50% starting in 2025. Additionally, tariffs on electric vehicles will surge from 50% to 100% later this year. The US government is also planning to raise tariffs on batteries and battery components from 7.5% to 25% by the end of the year, along with imposing tariffs on solar panels, marking a clear response to what it perceives as unfair trade practices.

President Joe Biden emphasized the strategic nature of these actions, stating, “Today’s measures to counter China’s unfair trade practices are specifically aimed at key sectors covered by the CHIPS and Science Act and the Inflation Reduction Act (IRA).” Notably, the increased tariffs will now extend to critical raw materials such as graphite for batteries and permanent magnets for electric vehicle motors.

The US administration has expressed concerns over China's trade practices, particularly in technology transfer, intellectual property, and innovation. The White House highlighted China's dominance in global markets through artificially low-priced exports and emphasized the need to address these issues through targeted tariff increases under Section 301 of the Trade Act of 1974.

Furthermore, the European Union is expected to become entangled in this trade dispute. The US government aims to collaborate with international partners to combat China's unfair practices collectively, rather than resorting to broad tariffs that could impact all imports from various countries, regardless of their trade practices.

According to the White House, China's policies in the semiconductor sector have led to a significant market share and rapid capacity expansion, posing a threat to investment by market-driven companies. The US anticipates that China could represent nearly half of all new capacity for manufacturing certain semiconductor wafers in the next few years.

The CHIPS and Science Act includes substantial incentives totaling $39 billion to enhance semiconductor manufacturing facilities and offers a 25% investment tax credit for semiconductor firms. By raising tariffs on semiconductors, the US aims to bolster these investments and promote sustainability in the industry.

Looking ahead, the tariff rates on electric vehicles and batteries are set to increase significantly in the coming years. The US plans to raise tariffs on lithium-ion EV batteries, non-EV batteries, battery parts, natural graphite, permanent magnets, and other critical minerals to 25% by specific target years, aiming to reduce China's dominance in these sectors.

President Biden highlighted the importance of reducing reliance on China for critical minerals and refining capacity, emphasizing the need to secure the US supply chains for national security and clean energy objectives.

Through initiatives like the Inflation Reduction Act, the US government is investing heavily in battery manufacturing and incentivizing domestic production of battery materials. The American Battery Materials Initiative has been established to ensure a reliable supply chain for batteries in the country.

In the solar energy sector, the US plans to increase tariffs on solar cells to 50% by 2024 to counter China's overcapacity and encourage solar development outside of China. The Inflation Reduction Act provides tax incentives for solar components and supports solar energy projects, leading to a significant increase in planned investments in US manufacturing capacity.

These measures reflect the US government's commitment to addressing unfair trade practices and strengthening domestic industries while fostering international cooperation to tackle global trade challenges.