Industry News

The “quiet” trade war that has been underway between the U.S. and China for a few years now is getting louder.

A recent series of punitive actions by both countries is making their ongoing dispute “more explicit,” says Christopher S. Tang, distinguished professor and Edward W. Carter Chair in business administration at the UCLA Anderson School of Management.

The Biden Administration, in addition to maintaining the tariffs broadly imposed by the Trump Administration on many Chinese imports, recently announced even tougher measures, covering an additional $18 billion in goods from China, “to protect American workers and businesses.” They include a boost in the tariff rate on steel and aluminum products to 25% from a previous high of 7.5%, and on semiconductors to 50% from 25%. 

An even more radical move by the White House was an announced increase in tariffs on electric vehicles manufactured in China from 25% to 100%. It appeared calculated to head off the flood of cheap Chinese EVs that is otherwise expected to hit U.S. shores in the next few years.

In addition, the U.S. Department of Commerce has revoked licenses allowing Intel, Qualcomm and other American chipmakers to ship product to China’s Huawei Technologies for use in laptops and handsets. And in response, China has directed its government offices not to purchase personal computers containing any American-made chips at all.

That last action is part of a Chinese government policy to push for greater self-sufficiency in the making of high-tech products, Tang says. “They want to develop their own manufacturing capabilities without depending on the U.S. or even Taiwan.” To that end, China is investing billions of dollars in Semiconductor Manufacturing International Corporation (SMIC), its partially state-owned foundry, to produce its own seven-nanometer chips. (U.S. Commerce Secretary Gina Raimondo responded by calling that technology “years behind what we have in the United States.”)

Further evidence of an industrial “decoupling” of China from the U.S. and other western nations is a push by China to get its national airlines to purchase narrow-body planes from the state-owned Commercial Aircraft Corp. of China (COMAC).

Tang says this series of actions by both countries represents in part an effort to “derisk” supply chains that have become too dependent on the U.S.-China trade and manufacturing relationship. Indeed, a substantial number of U.S. producers have already taken steps to shift operations away from China to Mexico, Southeast Asia and India (and, in some cases, the U.S. itself).

China aims to offset those losses in domestic production by setting up manufacturing arms in other countries, often masking their ownership to escape duties on Chinese exports to the U.S. That has been the case with solar panel production in Southeast Asia, as well as Chinese-owned auto plants in Mexico that “fly under the radar screen” to take advantage of duty-free privileges under the United States-Mexico-Canada Agreement. “Who owns the companies gets murky,” Tang says.

Whether all this amounts to a full-on trade war between the U.S. and China is a question of semantics. Tang says businesses are constantly shifting strategy in response to geopolitical tensions and changing trade dynamics. “This kind of supply chain restructuring has evolved along with tariffs and trade barriers,” he says. “It’s happened throughout history.”

In any case, don’t expect the move toward “decoupling” to sever the U.S.-China trade relationship entirely. “Indirect trade throughout China, behind the scenes, will not disappear,” Tang says. When it comes to sheer manufacturing capacity, efficiency and scale, “no other countries right now can do what China can do.” Even those manufacturers taking advantage of production fleeing China will continue to rely heavily on the nation for essential parts and raw materials.

Meanwhile, the “trade war” will continue to wage. “It doesn’t matter who wins elections,” says Tang. “Tariffs are not going to disappear. That’s how you get voters to vote for candidates – by protecting American jobs.”

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