CSCI: Biden's comments on China's new tariff increase _ Sina Finance

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　　 Research paper of CSC Securities | Qian Wei, Zhang Yican

The writing structure of this press release of the United States is basically consistent with the official document of the White House of the last survey of steel and aluminum products and shipbuilding industry, which adopts the "condemnation of the Trump administration's policy mistakes+China's' unfair 'trade practices+praise of Biden's ruling achievements". From the perspective of specific new categories and scope of tariffs, they can be roughly divided into three categories, namely, industries that "endanger the national security of the United States", industries in which China has asymmetric advantages, and industries that affect the well-being of American workers. However, in the short term, the tariff of $18 billion is targeted and structural, and its impact on China is not as big as the total tariff in Trump's period. Due to factors such as entrepot trade and exemption period, some categories can avoid short-term shocks. As the general election approaches, Biden and Trump will continue to use the card of China and the United States, and will use anti China to attract marginal voters. We need to pay attention to the disturbance of the two parties' policies and statements on China to the macro environment.

　　 On May 14, the Biden government of the United States released the results of the four-year review of the imposition of 301 tariffs on China, announcing that, on the basis of the original 301 tariffs on China, it would further increase the imposition of tariffs on $18 billion worth of products imported from China, such as electric vehicles, lithium batteries, photovoltaic cells, key minerals, semiconductors, as well as steel and aluminum, port cranes, personal protective equipment. China firmly opposed and seriously negotiated.

　　 1、 The US press release has a strong political nature, and its influence on China's exports may be limited in the short term

　　 The Biden government believes that the industries "endangering the national security of the United States" include ship and shore cranes, medical products and semiconductor industries, and the United States needs to "eliminate risks". According to the data of the US Coast Guard, 80% of the cranes in US ports are from China. On February 21 this year, Biden proposed to invest more than 20 billion dollars in port security construction in the next five years, including the production of new port cranes in the United States to replace Chinese cranes in ports across the United States and eliminate the so-called "potential threat" to the national security of the United States. As for medical products, the Biden government believes that the COVID-19 epidemic makes the United States too dependent on China's cheap medical products, and American enterprises suffer from competition. For semiconductor products, the press release said that in the next three to five years, China is expected to account for nearly half of the new production capacity of some traditional semiconductor wafers. The United States must eliminate the risk that chips in automobiles, medical equipment, and consumer appliances rely on a few markets. The Biden government recently completed a survey of more than 100 domestic automobile, aerospace, defense, and other companies, The investigation involves the supply chain of semiconductors with non advanced manufacturing processes, and the EU is also considering launching a similar review.

　　 The Biden government believes that China's industries with asymmetric advantages are mainly concentrated in the field of new energy. China's strong competitiveness in lithium battery, photovoltaic and new energy vehicle industries is recognized as "overcapacity" caused by "unfair trade practices". The White House press release said that the main achievement of the Biden administration after taking office was investment in the new energy field. The Biden administration believed that the "excess new energy capacity" created by "China's non market behavior" was being exported to the global market, which damaged the investment of other countries in the new energy field, so it was necessary to impose tariffs on Chinese products.

　　 The Biden government believes that the industries that affect the well-being of American workers mainly include China's steel and aluminum products and the automobile industry. Biden believes that China's so-called "steel and aluminum industrial policies and subsidies" have damaged the interests of American workers and need to impose punitive tariffs.

　　 In the short term, the tariff of $18 billion is targeted and structural, and its impact on China is not as big as the total tariff in Trump's period. Due to factors such as entrepot trade and exemption period, some categories can avoid short-term shocks. First of all, compared with the 301 tariff survey in the past, the total amount of this round is small, and there is a structural focus. At present, there is a two-year exemption period for non electric vehicle lithium batteries, natural graphite, permanent magnets and other products. New energy, photovoltaic and other products can use Southeast Asia for entrepot trade or through overseas production to avoid tariffs. New energy vehicles have a relatively low proportion in the U.S. market, Therefore, the short-term impact of this round of tariff increase is relatively limited.

　　 It should be noted that tariffs on steel and aluminum products will have an impact on China's steel and aluminum industry. China's exports of steel and aluminum products to the United States account for about 10%, and its dependence on the United States is not low. According to the HS classification released by the Chinese Customs, the total amount of steel and products exported by China in 2023 will be about 170 billion US dollars, of which 14 billion will be exported to the United States, accounting for 9.4%, but the proportion of exports to the United States will decline significantly after the epidemic; The total amount of aluminum products exported by China in 2023 will be about 35 billion, of which the export to the United States will be about 4 billion, accounting for 12.3%. The proportion of exports to the United States has also declined in the past two years, but it is still slightly higher than before the epidemic. With reference to historical experience, short-term exports of steel and aluminum products to the United States may improve significantly. As the market expects the tariff will rise soon, there will be strategic import in advance. Referring to the rules during the Sino US trade conflict in 2018, before the tariff was officially settled, the export of Chinese related goods to the United States would improve, and after the tariff was settled, there would be a trend downward.

　　 2、 The US general election duel heats up, alert to the disturbance of the two parties' policies and statements towards China on the macro environment

　　 As the general election approaches, Biden and Trump will continue to use the card of China and the United States, and will use anti China to attract marginal voters. From the perspective of current tax categories, they can basically correspond to different voters in the political spectrum. First of all, the tax on the steel and automobile industries is mainly used to attract the middle right voters in Rust Belt Pennsylvania, Wisconsin and Michigan. The tendency of swing state voters is often the key to determine the results of the American election. According to the latest poll results of Pew and WSJ, Trump is now significantly ahead of Biden in five of the six swing states, which is an important reason why Biden has repeatedly stressed the interests of American heavy industrial workers since April, rejected Japanese steel enterprises' mergers and acquisitions of American steel enterprises, and imposed taxes on Chinese steel and aluminum.

Second, alignment National New Energy Taxation of industries can attract both left-wing and right-wing voters. The return of manufacturing industry and new energy investment advocated by Biden after he took office are the main achievements of the Democratic Party. The imposition of tariffs on Chinese new energy products to ensure the cost advantage of American local new energy enterprises can make new energy investment more stable in the next few years. At the same time, the imposition of tariffs on China's new energy products is also in line with the claims of right-wing voters who oppose new energy investment.

　　 It may become normal for the two parties to play the "China card" in the election year, and the speeches and policies of political figures will disturb the macro environment and investment environment. Since Biden and Trump have fought head to head on many issues and the voter structure has basically solidified, the competition for swing voters and swing states on both sides will become increasingly fierce, and more and more political speeches will be made on the core issues of these swing states. Therefore, attention should be paid to the short-term disturbance of speeches or policies to the global capital market. In the medium term, the real trade policy of the United States towards China needs to wait for the new president to take office before it can be truly determined. At the same time, we should be alert to the impact of the spillover of the wave of American protectionism on China's important export markets such as Europe and ASEAN.

　　 US inflation rose more than expected, monetary policy continued to tighten, the US dollar appreciated significantly, US bond interest rates rose, and US stocks continued to fall; The US economic recession exceeded expectations, and the liquidity crisis occurred in the financial market, forcing the Federal Reserve to turn to easing; The European energy crisis exceeded expectations, the euro area economy fell into a deep recession, the global market fell into turbulence, foreign demand shrank, and the policy faced a dilemma; Sino US relations deteriorated more than expected; The upside risks include further deepening of the degree of anti globalization, the long-term impact of COVID-19 epidemic exceeding expectations, the recovery of the supply chain below expectations, the split of the supply side exceeding expectations, the deepening of global geopolitical turmoil, and the deterioration of the competition for related resources.

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