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U.S. Tariffs, Aimed at China and South Korea

Wednesday,Jan 31, 2018

A solar panel project, at left, in Wuhan, China. The United States accuses China of swamping the market with cheap, subsidized solar panels. But those panels are increasingly made in other countries.CreditKevin Frayer/Getty ImagesDAVOS, Switzerland — When the Trump administration unveiled tariffs on imports of solar panels and washing machines — industries dominated by Chinese and South Korean businesses — they deliberately applied them to products from around the world.

The move on Monday, in the eyes of United States trade officials, reflected the complexities of modern global trade. Though companies from just two countries account for the majority of both sectors, those firms have set up factories in multiple locations across national borders.

As a result, the tariffs will affect factories and workers in a variety of countries, reflecting the globalized supply chains and byzantine corporate ownership structures that are at the heart of many ubiquitous products.

The administration’s decision was followed on Tuesday by the announcement that a group of 11 countries would resurrect the Trans-Pacific Partnership, the pact that Mr. Trump pulled out of a year ago. The agreement, expected to be signed later this year, further complicates the president’s trade policies.

The solar panel case in particular has been a case study in the complexity of global trade. Suniva, one of the American solar companies that had sought the tariffs, filed for bankruptcy protection last year, citing the effects of Chinese imports. But the majority owner of Suniva is itself Chinese, and the company’s American bankruptcy trustee supported the trade litigation over the objections of the Chinese owners.

Here is a rundown of the wide-ranging impact the new tariffs may have.

Will there be a backlash?

Possibly — but not without costs for all the countries involved.

China and South Korea could take their complaints to the World Trade Organization, which arbitrates international trade disputes.

If the W.T.O. sided with those countries, the United States would be under considerable pressure to back down. If it did not, there would be two major sets of consequences. For one, the World Trade Organization could greenlight other countries’ setting similar trade limits. More broadly, it would raise the question of whether the United States accepts the organization’s decisions — Robert E. Lighthizer, the United States trade representative, has argued for years that such decisions should, essentially, be advisory.

The United States market has long been very attractive to foreign companies, and not just for its large and affluent set of consumers. Its tariffs on imports are much lower than those of most other countries, and it also has relatively low sales taxes. But President Trump has regularly questioned whether existing free trade agreements are in the best interests of the country, making it possible that such favorable terms may erode.

Still, China and South Korea have leverage of their own. They are big importers of American-made machinery and agricultural products, and China, in particular, has long been a big buyer of soybeans and other crops from states that supported Mr. Trump in the 2016 election.

Indeed, as an enormous consumer of all types of global goods, China could also easily punish American companies by opting to buy from international competitors. For instance, it could opt for Airbus planes over Boeing’s or crack down on General Motors while leaving Volkswagen alone.

A trade fight would, however, be painful. Both China and South Korea export a lot more to the United States than they import, meaning higher tariffs could hit their economies harder.

Who else could be affected?

The United States accuses China of swamping the market with artificially cheap, subsidized solar panels. But increasingly, those panels come from elsewhere. Steep tariffs imposed in 2012 on solar panels imported from China have made it cheaper for Chinese companies to assemble the panels in factories elsewhere before shipping them to the United States.

Countries like Malaysia and South Korea now account for most of the United States’ solar imports, according to data from Global Trade Atlas, a database maintained by the research firm IHS Markit.

Chinese companies like JA Solar and JinkoSolar, for example, have opened factories in Malaysia, though most such businesses still do much of their research and development at home.

The broad manufacturing base means other countries may face job losses and other hardships in the face of the United States tariffs, which could galvanize opposition to the president’s action.

American companies also manufacture some of their panels in Southeast Asia before importing some of them back into the United States. But their products tend to use a different technology, known as thin-film solar panels, which are not covered by the latest tariffs.

What happens next?

President Trump is set to speak to world leaders gathered this week at the World Economic Forum in Davos, Switzerland, where he could drop hints of whether the United States has more trade barriers to announce.

Washington could take action on aluminum or steel imports, two categories that have vexed previous presidential administrations. It is also exploring a major trade action against China focused on intellectual property.

“China’s regulatory authorities do not allow U.S. companies to make their own decisions about technology transfer and the assignment or licensing of intellectual property rights,” Mr. Lighthizer’s office said as part of a broader report last week, suggesting possible strong action.

The Trump administration’s move nevertheless leaves room for negotiation.

The tariffs announced on Monday on solar panels were not as high as American companies had requested. And with washing machines, the tariffs were somewhat higher than requested, but the administration said the higher rate would not kick in until the United States imports 1.2 million washers. A lower charge will apply to any imports below that threshold.

He Weiwen, a senior researcher of the Center for China and Globalization(CCG) in Beijing and a former Chinese Commerce Ministry official who is now an influential trade policy researcher in Beijing, said Chinese policymakers had reacted with “strong dissatisfaction” to the tariffs. But he predicted that China’s response would at first be cautious, as officials wait to see how strong the other American actions will be.

“We cannot expand to an overall trade war,” he added.


From The New York Times, 2018-1-23

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