THE Biden administration has begun pumping more than US$2 trillion into US factories and infrastructure, investing huge sums to try to strengthen American industry and fight climate change.

But the effort is facing a familiar threat: a surge of low-priced products from China. That is drawing the attention of President Joe Biden and his aides, who are considering new protectionist measures to make sure American industry can compete against Beijing.

As US factories spin up to produce electric vehicles (EVs), semiconductors and solar panels, China is flooding the market with similar goods, often at significantly lower prices than American competitors. A similar influx is also hitting the European market.

American executives and officials argue that China’s actions violate global trade rules. The concerns are spurring new calls in the United States and Europe for higher tariffs on Chinese imports, potentially escalating what is already a contentious economic relationship between China and the West.

Second season

The Chinese imports mirror a surge that undercut the Obama administration’s efforts to seed domestic solar manufacturing after the 2008 financial crisis and drove some American startups out of business. The administration retaliated with tariffs on solar equipment from China, sparking a dispute at the World Trade Organization.

Some Biden officials are concerned that Chinese products could once again threaten the survival of US factories at a moment when the government is spending huge sums to jumpstart domestic manufacturing.

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Administration officials appear likely to raise tariffs on EVs and other strategic goods from China, as part of a review of the levies former president Donald Trump imposed on China four years ago, said people familiar with the matter. That review, which has been underway since Biden took office, could finally conclude in the next few months.

Congress is also agitating for more protections. In a Jan 5 letter to the Biden administration, bipartisan members of a House committee expressed concerns about China flooding the US with semiconductors. Lawmakers asked whether the government could establish a new “component” tariff that would tax a chip imported inside another finished product.

That followed a November letter, in which members of the same committee advised the Biden administration to consider a new trade case over China’s EV subsidies, which could result in additional tariffs on cars.

Katherine Tai, the US trade representative, told the lawmakers she shared concerns about China’s practices in the EV industry, going by a Jan 4 letter that was shared with The New York Times. Tai told the committee that the administration needs “to work with US companies and unions to identify and deploy additional responses to help overcome China’s state-directed industrial targeting in this sector”.

Competition ramping up

The US has maintained tariffs on hundreds of billions of dollars of Chinese products over the past five years, viewing that as a way to offset Beijing’s ability to undercut American manufacturers by selling cheaper products into the US. Biden has tried to further help American companies with billions in subsidies intended to boost US manufacturing of clean energy technology such as solar panels and EVs, along with semiconductors.

Yet, Chinese industrial policy spending still far outstrips that of the US. Facing an economic slowdown and a gradual bursting of the property bubble, the Chinese government has recently redoubled efforts to promote exports and support its factory sector.

Beijing is particularly focused on investment in high-tech products with strategic importance, such as EVs and semiconductors, said Ilaria Mazzocco, a senior fellow in Chinese business and economics at the Center for Strategic and International Studies, a Washington think tank.

“Those are also the kinds of industry the rest of the world wants as well,” she said.

Some of China’s success stems from its larger market – which gives Chinese firms the scale and opportunity to hone their products – along with its vast pool of talented engineers. China sold about 6.7 million all-electric vehicles last year, for example, compared with around 1.2 million units in the US.

The Chinese government has said that it competes fairly and described US trade measures as protectionist.

But Wendy Cutler, vice-president at the Asia Society Policy Institute and a former trade negotiator, said China’s clean energy and semiconductor industries had received a lot of state assistance, in the form of tax credits, access to cheaper energy and equity infusions.

“The list goes on and on,” she said. “As Chinese companies avail themselves of these type of systems, it just leads to overcapacity.”

A different approach

In the US, when the supply of solar panels exceeds demand, factories idle their lines, lay off workers and try to bring capacity back into alignment, said Michael Carr, the executive director of the Solar Energy Manufacturers for America Coalition, which represents US-based solar manufacturers.

“That’s not the way it works in China,” he said. “They’ve just continued to build and build and build.”

China invested more than US$130 billion in the solar sector last year, and is positioned to bring enough wafer, cell and panel capacity online this year to meet annual global demand through 2032, according to analysts at Wood Mackenzie, an energy research firm.

Late last month, two US firms mounted a legal challenge to a temporary moratorium that the Biden administration had placed on tariffs on imported solar panels.

China’s hefty investments into semiconductors, including a new US$40 billion fund to support the industry, are also worrying companies investing in new US chip facilities.

China accounts for a relatively small share of global chip production – only about 7 per cent in 2022. But experts say that the country is spending more on its semiconductor industry than the US and Europe combined, and that it could become the world’s largest maker of chips in the next decade.

Dan Hutcheson, vice-chairperson of research firm TechInsights, said the fear was that China would do for semiconductors what it did for shipping, solar cells or steel – build up excess capacity and then drive foreign competitors out of business.

“It’s a legitimate fear, because the weakness of Western companies is they have to be profitable,” he said.

The US can – and does – impose tariffs on Chinese exports that are unfairly subsidised or sold in the American market for less than it cost to make them. This month, it slapped tariffs of more than 120 per cent on Chinese steel.

But even when Chinese goods are blocked from the US, they can flow into other countries. That pushes prices down globally to levels with which US firms say they cannot compete, and crowds American firms out of foreign markets, cutting into their revenue and competitiveness.

Take it as it comes?

Some say the US should simply embrace cheap Chinese-made solar panels and legacy chips, instead of imposing tariffs that raise costs for American consumers and factories that use imported inputs.

Scott Lincicome, a trade expert at the libertarian Cato Institute, said it did not make economic sense for the US to try to outspend China, especially for goods that are not military-related.

“Is the proper response, we do our own subsidies? Or is to be a better economist and say, ‘Actually, we’ll let foreign governments subsidise our consumption like crazy, we don’t really care?’” Lincicome said.

But most officials in Washington now see China’s dominance of key markets as a significant risk, given growing tensions between the countries and China’s imposition of certain export bans. China produces around 80 per cent of the world’s solar panels, nearly 60 per cent of EVs and more than 80 per cent of EV batteries.

The average price for an EV in China is around US$28,000, compared with about US$47,500 in the US, according to Dunne Insights, an EV market research firm.

In the fourth quarter last year, Chinese automaker BYD delivered more EVs than Tesla, surpassing the US firm for the first time.

Chinese EVs have surged in popularity in Europe, prompting the European Union to begin an investigation into illegal subsidies. So far, Chinese EVs have yet to gain a foothold in the US, which imposes hefty tariffs on those imports.

As part of the climate law Biden signed in 2022, buyers of EVs that are primarily sourced and assembled in the US, rather than China, will also receive lucrative tax credits. Still, some officials worry that Chinese vehicles are in general so much cheaper than American alternatives that consumers could choose to buy them anyway. NYTIMES