China calls US tariffs ‘madness,’ warns of full-on trade conflict

Posted on : 2024-05-16 16:46 KST Modified on : 2024-05-16 16:46 KST
Korea may see short-term gains but worries over tighter regulations on Korean products abound

China has ramped up its opposition to the US government's plan to substantially increase tariffs on Chinese products. With the country having already revised its Tariff Law to retaliate against countries that impose high tariffs on Chinese goods, it is highly likely that the tariff conflict between the US and China will escalate further. 

Chinese Foreign Minister Wang Yi, speaking at a press conference following talks with his Pakistani counterpart on Wednesday, said, "Over the past weeks and months, the United States has frequently imposed unilateral sanctions, abused the Section 301 tariff review process, and waged a campaign against China’s normal trade, economic and technological activities that borders on madness." Wang continued by saying that the US actions are “a most typical case of hegemonism and bullying” and that “some in the United States have lost reason in a quest to ensure US unipolar supremacy.” 

These remarks are notably stronger than China’s previous statements directly following the announcement of the tariff hikes. During a regular briefing on Tuesday, Foreign Ministry spokesperson Wang Wenbin stated, “China opposes unilateral tariffs that violate WTO [World Trade Organization] rules and will take all measures necessary to defend our legitimate rights and interests.”  

The US action that sparked China's backlash involves the invocation of Section 301 of the Trade Act to sharply increase tariffs on Chinese goods such as electric vehicles (EVs), EV batteries and semiconductors. Section 301 allows the US government to enact retaliatory measures when American businesses suffer due to unfair trade practices by other countries. Under the new US plan, tariffs on Chinese electric cars will rise from 25% to 100%, those on lithium-ion EV batteries from 7.5% to 25%, and those for semiconductors from 25% to 50%. Solar panels are also among the items facing higher tariffs. This aggressive tariff policy is effectively designed to restrict the entry of key Chinese products into the US market. 

It is highly likely that China will retaliate with tariffs of its own. Last month, the Standing Committee of the National People's Congress revised China’s Tariff Law (Article 17) to allow for equivalent tariffs on goods from countries that have trade agreements with China but impose high tariffs on Chinese products. The amendment, which will take effect in December, effectively provides China the institutional framework to counter the US tariff offensive. 

China could also adopt other forms of retaliation. Given the close interconnection between the US and China across all sectors of goods and services, disrupting these links could hurt the US significantly. For example, China could sell off its US Treasury bonds in large amounts, potentially disrupting not only the US but also global financial markets. Previously, in 2018, when the US Trump administration imposed additional tariffs on certain Chinese products, China responded with a WTO complaint and retaliatory tariffs. 

The US-China trade tensions are more likely to escalate than be resolved in the short term. Kyung Hee University professor Park Bok-yeong noted, "While the Biden administration’s Inflation Reduction Act aimed to secure domestic supply chains, the tariff hikes are intended to counter the influx of Chinese high-tech [industrial products]."  

Initially, the Biden administration focused on stabilizing supply chains and securing industrial competitiveness amid COVID-19-induced shortages. However, current measures are aimed at curbing China’s rise in high-tech industries to protect US economic security, with China undertaking countermeasures in response to this. In other words, the nature of the US-China conflict is evolving and deepening. 

This situation complicates the strategic calculations for South Korea, with its export-driven economy. There are expectations that Korean companies might benefit from the difficulty Chinese products, such as EVs, will face in entering the US market. However, the EV battery component industry, which relies on Chinese raw materials, will have to adjust its supply chains. 

Experts stress the importance of looking beyond short-term advantages and losses to understand the broader implications of shifts in the global trade structure and to formulate comprehensive strategic responses. Park Sang-hyun, a researcher at Hi Investment & Securities, remarked, “It is important to note the [growing trend of policies aimed at] protecting and nurturing domestic manufacturing. There is a strong possibility that regulations on Korean products may also be strengthened.”  

Park added, “The establishment of trade policies that align with the new trade environment, going beyond traditional Korea-US diplomatic strategy, is urgently needed.” 
By Jun Seul-gi, staff reporter 
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