US, Europe Wage War on China’s Lavish Subsidies, Cheap Goods

U.S. President Joe Biden greets Chinese leader Xi Jinping before a meeting during the Asia-Pacific Economic Cooperation (APEC) Leaders' week in Woodside, Calif., on Nov. 15, 2023. Brendan Smialowski/AFP via Getty Images

At the G7 summit in Japan last year, the United States and Europe composed a new playbook to counter China’s economic might, trade intimidation, and government subsidies for green technology.

A year later, the world’s wealthiest economies could follow this blueprint and employ various measures, be it anti-dumping strategies or import tariffs.

The White House has been voicing concerns that President Joe Biden’s Made in America revival is threatened by a flood of cheap Chinese products, from heavy metals to electric vehicles.

The Chinese government has subsidized various industries for years, allowing domestic firms to produce cheaper goods.

Companies export these products to the United States and other major markets, which many critics assert diminishes American entities’ competitiveness on the world stage.

In recent years, Beijing has dedicated its public resources to green technology, pouring hundreds of billions of dollars into these products.

Market observers and public policymakers warn that China’s subsidies are leading to a climate where government-supported entities are overproducing green tech, such as EVs, lithium-ion batteries, and solar panels.

This, in turn, would result in a worldwide glut and manufacture a deflationary environment for the sector.

Treasury Secretary Janet Yellen says an oversupply of subsidized Chinese clean energy products could put U.S. companies out of business.

“This isn’t a level playing field. And from a supply chain standpoint, I think it creates risks that we’re clearly seeking to mitigate, and it’s also unfair to our workers and firms,” Ms. Yellen told reporters at the International Monetary Fund and World Bank spring meetings in April.

She noted that U.S. allies “feel the same way” as the current administration.

“It’s fine for China’s firms to export in this industry, to develop it. But some of the techniques that they use—subsidizing their firms very heavily and then supporting them even when they’re losing money,” Ms. Yellen told CNBC last month.

“This is something that’s unacceptable from the U.S. point of view, and many of our allies feel the same way.”

In response to China’s subsidies and to attract more investment into the United States, the federal government passed three landmark spending bills, including the Inflation Reduction Act and the CHIPS and Science Act.

Despite opposition from Republican lawmakers and many economists, the president’s legislative pursuits handed out tens of billions of dollars in subsidies to domestic and foreign businesses.

Slowing US-China Trade

Over the past 15 months, United States–China trade has slowed. According to Census Bureau figures, U.S. imports of Chinese goods in 2023 were down 5 percent from 2019, totaling about $427 billion.

Moreover, in the first quarter of 2024, imports were down 7 percent compared to the same period in 2019.

China says the slowdown is a result of punitive tariffs and export controls.

Xie Feng, China’s ambassador to the United States, told an audience at Forbes’ U.S.–China Business forum that the administration’s policies have impacted trade.

“This is a direct consequence of U.S. moves to levy Section 301 tariffs on Chinese imports, abuse unilateral sanctions, and further tighten up export controls,” he said.

“Livelihoods of many families have been affected, and businesses from both countries have borne the brunt.”

Cargo containers stacked at Yantian port in Shenzhen in China's southern Guangdong province on June 22, 2021. STR/AFP via Getty Images

Section 301 allows the U.S. Trade Representative (USTR) to slap duties and other import restrictions on foreign countries.

But while the data have yet to suggest that subsidized Chinese goods are decimating domestic businesses engaged in the green economy, U.S. and European officials are taking a proactive approach to countering the country’s so-called anti-competitive practices.

US Paving a Level-Playing Field

Earlier this month, in a letter to the administration, Senate Democrats urged President Biden to maintain tariffs on China in response to the country’s “anticompetitive practices.”

“Any reduction in the 301 tariffs allows China to gain a competitive advantage over hardworking Americans. American workers can compete with anyone if they have a level playing field, and now is not the time to roll back support,” the letter, co-written by Sens. Bob Casey (D-Pa.) and John Fetterman (D-Pa.) said.

While President Biden has primarily maintained his predecessor’s trade policies, the current administration is considering adding to the portfolio of levies placed on China.

According to Reuters, citing two people close to the situation, President Biden is poised to announce new tariffs on China that target strategic sectors, including EVs, semiconductors, and solar equipment.

This comes one month after the president demanded higher U.S. tariffs on approximately $1 billion worth of aluminum and steel products.

Under the new proposal, these levies would be raised from 7.5 percent to 25 percent.

“Prices are unfairly low because China’s steel companies don’t need to worry about making a profit because the Chinese government subsidizes them so heavily,” President Biden said at the headquarters of the United Steelworkers union in April.

“They’re not competing, they’re cheating, and we’ve seen the damage here in America.”

Since arriving at the Oval Office, President Biden’s crop of trade pursuits has been a departure from his campaign rhetoric in the 2020 election when he blasted then-President Donald Trump’s levies on China.

In 2019, he argued that tariffs on China hurt U.S. businesses and consumers, calling his rival’s economic decision-making “shortsighted.”

During an August 2020 NPR interview, then-candidate Biden said he would not keep the tariffs.

“We’re going after China in the wrong way,” he stated.

But with concerns that the presumptive Republican presidential nominee’s promise of higher tariffs on China could garner support in swing states, such as Pennsylvania and Wisconsin, the incumbent and his team could be swayed by political considerations.

How Europe Is Reacting

Europe has expressed concern surrounding anti-competitive practices and market distortions by China.

Following her recent trilateral meeting with Chinese leader Xi Jinping and French President Emmanuel Macron, European Commission President Ursula von der Leyen said the global economy “cannot absorb” the country’s surplus output.

“These subsidized products, such as the electric vehicles or, for example, steel, are flooding the European market,” she stated.

“Europe cannot accept the market-distorting practices.”

Last month, the European Union established several probes to officially determine whether Chinese clean-tech companies are dumping subsidies on products in the European market.

These investigations will also conclude if Chinese firms receive government support while operating in the trade bloc.

In one specific case, the EU’s executive body will dig deeper into the subsidies received by Chinese suppliers of wind turbines that will be sold in Europe.

As part of its subsidy probes, EU officials carried out “unannounced inspections” of Nuctech, a Chinese security equipment maker.

“The commission has indications that the inspected company may have received foreign subsidies that could distort the [EU’s] internal market,” the European Commission confirmed.

The commission announced this past fall that it would launch an investigation into Chinese EVs and whether they are benefiting from subsidies.

If so, officials would consider imposing tariffs.

Beijing accused the EU of being “discriminatory” and engaging in trade protectionism.

“The outside world is worried about the rising tendency of protectionism in the EU,” Mao Ning, a foreign ministry spokesperson, said at a press briefing last year.

US Not Halting Trade With China

A vital trade development in the current administration has been the gradual “de-risking” campaign.

Top officials have championed an initiative to diversify trade relations with Indo-Pacific countries, such as Cambodia, India, Indonesia, and Japan.

Ms. Yellen and others have contended that de-coupling the U.S. and Chinese economies would not be “practical” due to the enormity of Asian supply chains and America’s vast economic ties with China.

“A full separation of our economies, or an approach in which countries including those in the Indo-Pacific are forced to take sides, would have significant negative global repercussions,” she said in a speech at an Asia Society event in November.

“We have no interest in such a divided world and its disastrous effects.”

Commerce Secretary Gina Raimondo echoed this sentiment before lawmakers.

“We aren’t trying to cut off all trade,” Ms. Raimondo told a House Appropriations Committee hearing on May 7.

“We’re going to continue to sell to them, and that’s good for the American economy.”

Because the world fears Chinese retaliation, many countries have been tiptoeing in the global economy to avoid perturbing Beijing.

However, experts contend that the United States and its partners could expand and implement a toolkit to fend off China’s “economic coercion.”

Targeted sanctions and export controls on vital goods in China’s supply chains would allow the United States “to credibly impose costs on China as to combat Beijing’s coercive efforts around the world,” according to a Center for Strategic and International Studies (CSIS) report.

“Given the malign impact of Chinese economic coercion, the United States will be at an increasing disadvantage unless it invests in developing tools to leverage its economic strength to combat China’s growing use of economic forces as weapons of the state,” the report stated.

“And given China’s ongoing use of economic coercion, countries can infer that China will understand economic signals directed at its own interests and take them seriously as tools of statecraft.”