US-China Market Watch: Tariffs, China Lockdowns, Solar “Freeze”

By Angela Bao
May 4, 2022
(Photo credit): Gettyimages.com/Kevin Frayer / Stringer

Your monthly roundup of the latest US-China business and industry news.

U.S. divided over how to deal with China tariffs

With inflation at its highest in four decades, United States officials are at a crossroads about whether they should cut back on the $360 billion tariffs on Chinese goods to combat the issue. Treasury Secretary Janet Yellen and Commerce Secretary are in favor of reducing the tariffs, but Trade Representative Katherine Tai wants to keep the tariffs in place as leverage to make China capitulate to U.S. demands.

President Biden has yet to make a decision on whether to lift tariffs, but the White House is currently conducting an obligatory review to determine their effect on the U.S. economy. White House press secretary Jen Psaki stated that the Biden administration is looking at the effects of the tariffs on imports and inflation, but intends to keep intact the parts that protect American workers and the economy.

Curbing inflation will be a key point in evaluating the tariffs. The Peterson Institute for International Economics found that eliminating tariffs could reduce inflation by 1.3 percentage points. In another study, the Peterson Institute found that the tariffs on China added 0.26 point to annual inflation.

China lockdowns causing headaches for U.S. companies

The recent Covid-19 lockdowns in Shanghai have increased its toll on U.S. companies operating in China, adding strain to an already fraught supply chain. Shanghai is the largest shipping port and a major manufacturing hub in China, accounting for 3.8% of China’s gross domestic product and 7.2% of exports last year.

Apple says its sales could take as much as an $8 billion hit this quarter due to the Shanghai lockdowns. Industrial manufacturer Honeywell said that production has been cut at more than half its plants in China. Although the Chinese government may be able to support the economy and production through policy measures, analysts from Bank of America say it could be difficult to “restore confidence” and that it could accelerate companies moving their supply chains out of China.

China to step up support for economy

Facing economic pressures from increasing Covid-19 lockdowns, President Xi Jinping signaled that the government step up policy support for the economy and might be easing pressure on the tech industry, which had been facing serious crackdowns since 2020.

There were also reports that China’s top officials would be holding a meeting with the country’s largest internet companies and have issued invitations to Alibaba, Tencent, Bytedance, and food delivery giant Meituan.

Experts believe that indicates Beijing will ease its clamp downs on the so-called “platform economy,” which began due to purported violations of anti-monopoly and data privacy regulations, as well as wanting to lessen the widening wealth gap. However, Reuters says that the crackdowns on the education, property, and e-commerce sectors have already taken a broad economic toll.

Solar projects delayed nationwide due to U.S. investigation of China

The U.S. Department of Commerce has launched a probe into whether or not Chinese companies are circumventing tariffs by moving solar panel components to Thailand, Cambodia, Vietnam, and Malaysia. Together, those four Southeast Asian countries provide 82% of the most popular types of solar modules to the United States.

Although no evidence has been found yet, the threat of retroactive tariffs has caused 318 solar projects have been cancelled or delayed, and hundreds of companies are also considering mass layoffs. According to the Solar Energy Industries Association, its members were expecting a 46% decrease in the number of solar panels they expect to install this year.

The “freeze” could severely impact the $12 billion solar industry, as well as President Biden’s own goals to cut emissions to at least 50% below 2005 levels by 2030.

Nio to start production of smart EV that could challenge Tesla in China

Shanghai-based electric carmaker Nio has started sample production of its new mid-sized electric vehicle, the ET5, at its new Hefei factory, dubbed the NeoPark. With its 550-kilometer range and digital cockpit with augmented and virtual reality capabilities, the ET5 has is viewed as a competitor to Tesla’s popular Model 3, and Nio hopes it will help the company gain considerably more market share in China’s EV market. Nio revealed the ET5 in December 2021 and aims to make its first deliveries in the third quarter this year.

With other carmakers snarled in supply chain issues, Nio is trying to circumvent that and race ahead of rivals with the opening of the NeoPark, it’s second production facility. The NeoPark has the capacity to produce 1 million vehicles and 100 gigawatt-hours of batteries once it’s fully completed.

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