Xi weighs his next move as Biden slaps more tariffs

As foreshadowed, US President Joe Biden announced more tariffs on China-made products this week. The 46th president said China was “cheating” on trade, so he slapped or raised tariffs on EVs and other goods like batteries, critical minerals, medical equipment, and chips, to “protect US workers and businesses.”

Here’s a mouthful to chew on as you read: Biden issued these tariffs under Section 301 of the Trade Act, which allows the US to investigate and retaliate against breaches of US trade deals and other “unjustifiable” trade shenanigans.

Since taking office in 2021, Biden has maintained – and now added to – Trump-era tariffs on China, while levelling various new restrictions on tech exports. The basic argument is that China has been yoinking US tech (whether via theft or ‘forced transfer’), then helping its own companies “flood” global markets with artificially cheap goods that wipe out US companies and jobs.

So that brings us to this week’s announcement, which tries to do four things:

1. Appeal to autoworkers in key US election swing states
2. Protect and build US industry in strategic sectors (auto, tech, energy)
3. Curb any dominance in those same sectors by a rival like China, and
4. Still allow US industry time to diversify away from China’s chokepoints like graphite (Biden’s new graphite tariffs don’t kick in until 2026).

China has already condemned (🇨🇳) the move. But while China has also previously retaliated within days, this time it seems to be holding fire for now, and we’re not surprised.

First, on a purely scheduling note, President Xi has had a busy week, including hosting a two-day visit by his Russian counterpart, which wraps today. 

And in some ways, that visit is already a quick answer from China, with Putin and Xi jointly condemning Washington’s broader “hegemonic” actions in a statement that mentions the US a cool seven times. At least we’ve moved past the days of Beijing only referring obliquely (if sassily) to the US as “certain parties”.

And second, while there are differences, America’s hardening approach to China is now one of the few points of bipartisanship in the US. So if you’re Xi, why not take your sweet time with a calibrated rather than reactive next move?

So the ball is now in Xi’s court. And as he weighs up his response he will, like Biden this week, have quite a few things on his mind.

INTRIGUE’S TAKE

What things are on Xi’s mind as he weighs a response, we hear you say?

• Timing: Xi knows his decision to retaliate (or not) will become a US campaign issue one way or another, so he’ll be mindful to either a) not feed that cycle, b) work it to his advantage, and/or c) keep some leverage to respond to whoever’s in the White House next year.
• Vulnerability: There are wrinkles (see below) but China sells more to the US than vice versa, leaving Xi more vulnerable on aggregate; even more so given Xi’s determination to revive China’s economy by selling more to the world, which gets trickier in an escalatory cycle of tariffs.
• Spectators: Xi will also ponder how his next move plays elsewhere, particularly in Europe, his second-largest customer. The EU is openly divided on how to deal with China, and that in turn opens up gaps between the EU and US. Xi won’t want to unify others against him.

We also promised wrinkles, so here are three: First, the US is still fighting inflation. Second, US manufacturing output is about a third the size of China’s. And third, US dependence on China is still quite deep in some areas (including various critical minerals).

So all this to say that, yes, there are reasons Xi might hold fire for now (and former Chinese trade officials are reportedly urging exactly that). But yes, there are also targeted ways he can – and might – still poke back.

Also worth noting:

• A bonus fourth wrinkle: the US still depends on China for various inputs that are critical to the US energy transition.
• The White House noted in this week’s announcement that China’s EV exports grew globally by 70% between 2022 and 2023.
• Back in 2019, Biden condemned Trump’s tariffs on China. We mention this, dear Intriguer, not to wade into politics, but to highlight how relatively bipartisan this issue has now become.