On May 14, 2024, the Biden administration — following the conclusion of the U.S. trade representative’s (USTR’s) statutory review of Section 301 tariffs imposed on Chinese-origin goods in 2018 — announced prospective increases to tariffs on a range of goods manufactured in China. The USTR review focused on identifying whether measures enacted under the Trump administration effectively addressed “unjustifiable,” “unreasonable” or “burdensome” trade practices from China. In a press release announcing the USTR’s findings, Ambassador Katherine Tai admitted that the existing tariffs “have been effective in encouraging [China] to take some steps to address the issues identified in the Section 301 investigation, [but that] further action is required.”
In response to the findings, the Biden administration announced it directed the USTR to increase tariffs on $18 billion of imports from China across strategic manufacturing sectors, including electric vehicles, batteries, solar cells, semiconductors, and other critical minerals and materials such as steel, aluminum and medical products. The new tariffs complement other Biden administration policies, including policies designed to encourage domestic production of these products and signal the White House’s intent to increase protection to U.S. manufacturers from Chinese efforts to appropriate intellectual property and innovation and to over-produce certain products.
Based on the review, the Biden administration directed the USTR to maintain existing tariffs on Chinese imports and impose new tariffs on a range of new products. These new Section 301 tariffs will include incremental increases effective in 2024, 2025 and 2026. Some of the imports included in the announcement are listed below.
Rate Increases Effective in 2024
| Product | Current Rate | New Rate |
|---|---|---|
| Battery parts (non-lithium-ion batteries) | 7.5% | 25% |
| Electric vehicles | 25% | 100% |
| Personal protective equipment, including respirators and face masks | 0%-7.5% | 25% |
| Lithium-ion electric vehicle batteries | 7.5% | 25% |
| Other critical minerals | 0% | 25% |
| Ship-to-shore cranes | 0% | 25% |
| Solar cells (whether or not assembled into modules) | 25% | 50% |
| Steel and aluminum products | 0%-7.5% | 25% |
| Syringes and needles | 0% | 50% |
Rate Increases Effective in 2025
| Product | Current Rate | New Rate |
|---|---|---|
| Semiconductors | 25% | 50% |
Rate Increases Effective in 2026
| Product | Current Rate | New Rate |
|---|---|---|
| Lithium-ion non-electric vehicle batteries | 7.5% | 25% |
| Rubber medical and surgical gloves | 7.5% | 25% |
| Natural graphite | 0% | 25% |
| Permanent magnets | 0% | 25% |
The USTR will issue a Federal Register notice for interested parties to comment on the proposed tariff increases. This notice also will include an exclusion process for machinery used in domestic manufacturing, particularly for certain solar manufacturing equipment.
Ultimately, the USTR will issue a final determination as to the new rates following the notice and comment period — a process expected to take several months. If the tariff increases are finalized, increased pricing for Chinese imports will significantly impact the cost of goods imported from China. Additionally, once the new tariff increases are in place, U.S. policymakers anticipate the Chinese government will retaliate through new or increased tariffs on U.S. products. It will be important for companies to assess the extent to which new and increased tariffs impact their operations as well as future development activities and the extent to which any existing or proposed development activities may benefit from any announced exclusion process. All stakeholders in the energy space will need to assess the impact of the proposed tariffs under existing procurement, construction and other related development contracts, and consider how to address future tariffs in any such yet to be executed contracts.
McGuireWoods continues to track the proposed tariff increases and the market response. Please reach out to the authors with questions or to discuss the above information, including strategies to address and allocate the risks associated with the proposed tariff increases.