I haven’t dedicated a blog to the US/Sino trade war for some time.

Actually, since October 2022.

That’s when the U.S. Bureau of Industry and Security implemented export controls on advanced computing semiconductor chips, transactions for supercomputer end-uses, and transactions involving 28 entities on the Entity List. You can get a refresher here.

Since then, the trade war has become part of everyday life, and in its place we’ve had kinetic wars to talk about and deal with.

Still, you might recall the trade war had its origins in the Trump Steel and Aluminium tariffs of March 2018.

Let’s think about that for a moment – that’s over 6 years ago!

It feels like a million years ago (actually, everything that happened before the Pandemic feels a bit like that) and while most people at the time said it would blow over, well, it just levelled up again.

Yesterday, the United States Trade Representative, Katherine Tai, announced the following:

“After thorough review of the statutory report on Section 301 tariffs, and having considered my advice, President Biden is directing me to take further action to encourage the elimination of the People’s Republic of China’s unfair technology transfer-related policies and practices that continue to burden U.S. commerce and harm American workers and businesses.”

Ambassador Tai recommended products from the PRC currently subject to Section 301 tariffs should remain, and that tariffs on certain products should be increased and some added.

Here are the increases:

You can see where this is going.

Politics, protectionism, populism all rolled into one as the Biden Administration seeks to pre-empt how tough Donald Trump will get on China and protecting U.S. jobs and industry as the November election draws near.

Unsurprisingly, the largest increases are on items associated with Biden’s green transition and the technology race/Chips Act.

The biggest imposts focus on the China EV, solar cell and semiconductor trades, with EV and solar cell tariffs hiked to 100% and 50% respectively this year, and semis hiked to 50% next year.

These were all 25% rates before the increases, meaning EV tariffs are now 4x what they were. But hello, it’s an election year.

While battery and battery parts also increase this year, rare earths (i.e., permanent magnets) win a reprieve until 2026 before being increased to 25% which looks a little pedestrian, however of all EV/green transition inputs, it’s the one that China exerts the most control over.

And who will win? Not BYD and certainly not the U.S. consumer.

This is because as the volume of deflationary goods imported from China reduces as a result of these tariffs (assuming they are implemented), those inputs will be replaced by more expensive goods sourced domestically or from other geopolitically aligned countries.

This will increase inflationary pressure on goods and/or reduce economic growth.

On top of this will be more spending from Treasury, which I’ve covered in numerous recent blogs and articles.

The likely result? More reason for higher interest rates to deal with higher inflation, for longer.

See you in the market.

Mike