Leibowitz: North America tackles Chinese imports, but the future remains unclear

The Canadian announcement had two basic points: (1) an increase of Canadian tariffs on Chinese-made electric vehicles (EVs) to 100%; and (2) a 25% surcharge on specified Chinese-origin steel and aluminum products. These steps mirror earlier action on both fronts.

Earlier this year, President Joe Biden announced 100% tariffs by the U.S. on EVs imported from China. But the effective date of these increased tariffs has been postponed a few times, the latest postponement being last Friday.

In 2018, President Donald Trump imposed “national security” tariffs of 25% on steel and 10% on aluminum from many countries. Also in 2018, the United States imposed Section 301 tariffs of 25% on many aluminum and steel products made in China.

Earlier in 2024, Mexico announced its decision to help the United States by cooperating with the U.S. decision to impose 25% tariffs on certain steel products that were made from steel that had been “melted and poured” outside North America, and 10% tariffs on aluminum that was smelted outside North America.

So, while North America is not quite speaking with one voice about China, the cooperation is evident.

All three United States-Mexico-Canada Agreement (USMCA) partners are very concerned about the increasing penetration by China of Western markets. It has been clear for a couple of years that China cannot absorb all the production of Chinese factories. To keep those factories humming, China is exporting — a lot.

Still, there is no evident strategy, for the U.S. or the West in general, to deal with China’s current export drive. To be honest, there is no clear end game to China’s export strategy, either.

In summary, the best evidence of both the Chinese and Western strategies is to frustrate each other. For example, China is seizing on Western efforts to address climate change. It has subsidized production of solar and wind energy equipment and electrical vehicles and their key components (such as lithium batteries) in an effort to increase the West’s dependence on China for achieving climate goals. But China has not seriously bought into the need to address climate change in its own mix of electric generation, which still relies heavily on coal.

The West, for its part, imposes tariffs and other restrictions on China’s exports of some products in key growth sectors for China, including renewable energy, steel, aluminum, and EVs. But in other key sectors, such as production equipment, medical supplies, textiles and online retail merchandise, very little has been done to inhibit China’s exports.

The other side of the coin is supporting Western companies that seek to compete with China. There has been some effort in this regard — but the record, at least in the United States, has been very spotty. One example of that is in R&D in steelmaking processes and encouraging foreign investment in semiconductor manufacturing and production of personal protective equipment in the United States. But these efforts don’t seem to have a genuine goal in the intensifying competition with China.

Don’t get me wrong: I believe that the Western economic system based on private initiative and investment is superior to the Chinese system based on government control. In order to win the competition, we should focus on what works best and resist emulating the Chinese system. Government support for chosen companies may buy votes, but it does not buy economic success.

Winning the Cold War provides an example. In the 1980s, the United States determined that spending, especially on national defense, was something we could afford but the Soviets could not. The “Star Wars” missile defense systems were used to force the Soviets to spend money they didn’t have trying to keep up. That race was more important to winning the Cold War than whether the systems actually worked. And, in the end, the Soviets ran out of money before we did.

The competition with China is different, but the fundamentals are the same. The capitalist system will generate new products and services much faster than the communist system. The products that China is trying to export may become obsolete because new products will take their place. The Chinese may try to capture those new markets, because that is clearly part of their strategy.

In a geopolitical competition, we must recognize that government plays an important role. Government must protect the nation from attack, whether military or economic. The proper mix of government and private initiative, with each staying it its proper lane, will prove to be the winning formula in the current global competition, just like those in the past.

Editor’s note: The views, thoughts, and opinions expressed in the content above belong solely to the author and do not necessarily reflect the opinions and beliefs of Recycled Metals Update or its parent company, CRU Group.