The intention of the United States to impose high tariffs on sensitive Chinese goods and the response strategies of Chinese companies

The intention of the United States to impose high tariffs on sensitive Chinese goods and the response strategies of Chinese companies are a complex international economic and political issue. The following is from the two aspects of intention analysis and response strategies:

1. The main intention of the United States to impose tariffs
   Protect domestic industries

By increasing the cost of Chinese goods (such as new energy, semiconductors, steel, etc.), weakening their price competitiveness, and gaining development time and market space for domestic industries in the United States (such as electric vehicles, photovoltaics, etc.).

Typical case: In 2024, the Biden administration will increase tariffs on Chinese electric vehicles from 25% to 100%, and tariffs on photovoltaic modules from 25% to 50%.

Containing technological competition

For high-tech fields (such as chips, AI, quantum computing), restrict China from obtaining funds through exports to feed back research and development, and maintain US technological hegemony. For example, collateral sanctions on companies such as SMIC and Huawei.

Political game tools

Show a tough stance against China during the election cycle to win voters, and at the same time as a bargaining chip in Sino-US negotiations, force China to make concessions in other areas (such as market access and intellectual property rights).

Supply chain restructuring

Promote “de-risking” and force multinational companies to transfer production capacity from China to Southeast Asia or Mexico. For example, the Chips and Science Act requires that companies that receive subsidies should not expand production in China within 10 years.

2. Multi-level response strategies of Chinese companies

(1) Market dimension
Diversified exports

Turn to RCEP member countries (China’s exports to ASEAN will increase by 8.6% in 2023), the Middle East (new energy vehicle exports to the UAE will double), and the BRICS market.

Case: BYD built an electric vehicle base with an annual production capacity of 150,000 vehicles in Thailand to avoid European and American tariffs.

Localized production

Establish KD assembly plants in target markets: such as CATL’s 100GWh battery factory in Thuringia, Germany, and LONGi Green Energy’s module factory in Ohio, USA.

(2) Technology dimension
Moving up the value chain

The photovoltaic industry has shifted from module exports to power station operations (China’s overseas new energy power station investment will reach $12.8 billion in 2023).

The semiconductor field will accelerate the localization of mature processes of 28nm and above (SMIC’s capacity utilization rate will reach 92% in 2024).

Standard output

Promote the internationalization of Chinese technical standards, such as Huawei’s 5.5G patents and BYD’s blade battery technology licensed to Toyota.

(3) Compliance dimension

Third-country re-export

Transit through Malaysia (semiconductors) and Vietnam (textiles) must meet the local 35% value-added requirements. For example, a Jiangsu textile company set up a factory in Haiphong City, Vietnam to process and export to the United States.

Tariff exclusion application

Among the more than 2,000 commodities that successfully applied for US tariff exclusion in 2023, 30% were applied by Chinese companies through US importers, such as specific industrial machinery parts.

(4) Policy coordination

Participate in free trade agreements

Take advantage of the upgraded version of the China-Chile Free Trade Agreement (effective in 2023) to process lithium ore into battery positive electrode materials and export them to the Americas duty-free.

Dual circulation layout

Cross-border e-commerce (China’s cross-border e-commerce imports and exports will reach 2.38 trillion yuan in 2023, an increase of 15.6%) is linked to the domestic market, such as Anker Innovations expanding its domestic market through the Amazon brand overseas.

3. In-depth analysis of typical cases
   Longi Green Energy responds to US photovoltaic tariffs:

Building 6GW silicon wafer production capacity in Vietnam (commissioned in 2024), using Malaysian silicon materials to meet the US “Southeast Asia tax exemption” policy requirements.

Establishing a joint venture with US developer Invenergy to build a 5GW module factory in the United States to obtain subsidies from the Inflation Reduction Act.

Result: In 2024, shipments to the United States grew by 12% against the trend, and market share rose to 18%.

4. Prediction of future trends
   Precision of tariffs: The United States may impose tariffs on Chinese graphite (accounting for 75% in 2023) and other subdivided materials in new energy vehicle batteries.

Refined response: Chinese companies need to establish a “country cost model” to comprehensively consider tariffs, logistics, and geopolitical risks (such as the impact of the Red Sea crisis on European freight).

Technology decoupling is accelerating: In 2024, new export controls by the United States, Japan and the Netherlands will force China to increase its investment in semiconductor equipment R&D by more than 30%.

Under the current situation, Chinese companies need to incorporate tariff responses into their global supply chain strategies and resolve pressure through a combination of “technological breakthroughs + market reconstruction + compliance innovation”. At the same time, pay attention to the new variables in international trade rules that may be brought about by the 13th WTO Ministerial Conference (February 2024).