The American president did not take half measures by deciding to increase customs duties on Chinese electric vehicles from 25% to 100%. Joe Biden is also increasing taxes on semiconductors, steel, aluminum and photovoltaic cells imported from China. 18 billion dollars of products are affected. The economic scope of this package of measures appears limited. The candidate for a second term aims above all to convince the hesitant electorate of certain key states, where automobile industry dominated.
Will this political bet be enough to beat Donald Trump, always ready to outdo one another in terms of protectionism? A specialist in the United States, Raphaël Gallardo, the chief economist of the French investment fund Carmignac, delivers his analysis to L’Express.
L’Express: How do you judge President Biden’s announcements? Is this a strong signal sent to China, or to American voters?
Raphael Gallardo: Both ! To tell the truth, for a month, we have noticed that the polls have not are really not good for Joe Biden in key states. In particular, Trump is widening the gap in the Rust Belt [NDLR : la région industrielle du nord-est des Etats-Unis]. However, in my opinion, for Biden to win, he must win these three states: Michigan, Wisconsin and Pennsylvania. But he imposed a ban on new liquefied natural gas terminals late last year, a move that hurt him in Pennsylvania, the nation’s second-largest gas state. Furthermore, Michigan is the state where the proportion of Muslim voters is highest, a population likely to criticize Biden for his lack of firmness against Netanyahu over the war in Gaza.
In a second scenario, a victory is possible without Michigan, but with Nevada and Arizona, two states where the law on abortion has become so restrictive that it could lead young people to mobilize. But I don’t really believe it, as Trump is so far ahead. Today, Biden is losing the young electorate on the one hand and the African-American and Latino electorate on the other. So we will have to go and fight, which explains this race for protectionist one-upmanship with Trump, to which the population of the Rust Belt is sensitive.
And with regard to China?
China is in complete denial, despite Janet Yellen’s recent warning about overcapacity and subsidies in Chinese industry. She makes no concessions. Likewise, during his European trip, Xi Jinping did not give up on commercial issues – nor on Russia, despite the nuclear escalation – against Emmanuel Macron and Ursula von der Leyen. China continues to deny the problems of overcapacity, which can only encourage the United States to raise its voice. But it is going against the wall with such a policy: the Western states are closing the door to it, and the countries of the South, with narrow and not very solvent markets, will do the same in the long term. The novelty of Biden’s approach is that it incorporates the need for protection against tariff evasion using transit countries like Mexico, in order to compensate for the inefficiencies of the protectionist measures taken under the Trump presidency.
For his part, Trump reacted immediately to Biden’s announcements by saying that he would not hesitate to put 200% taxes on electric vehicles once elected. In the American political debate, there are no limits! We can talk about 200% customs tariffs, that no longer shocks anyone. We need to prepare for a Trump victory in my opinion, but in a version without a Gary Cohn to restrict him [NDLR : l’ancien patron de Goldman Sachs était son conseiller économique jusqu’en mars 2018]. This pricing policy will accelerate if he is re-elected.
Will the measures already announced by Biden have an impact on the American economy?
No, it’s symbolic. However, saying that the United States will no longer be fooled by the Mexican factories in which the Chinese are investing is a real quantum leap. This change is major because it completely calls into question the free trade agreement between the United States, Canada and Mexico.
For Mexico, this is bad news. But ultimately, this affects the United States relatively little, which was not invaded by Chinese electric cars anyway – Trump had already done the job by imposing customs duties of 27.5%. Above all, this demonstrates that there will be a protectionist escalation until the election. In fact, Biden is forced to act like Trump, because he is panicking.
So we should expect other announcements on new products?
For now, these measures remain very targeted. This is more about industrial policy than a trade war. But if Trump continues to push him into this escalation, he can expand them beyond strategic sectors, to guarantee self-sufficiency in this or that sector. Pharmacy for example, the manufacturing of vaccines and antibiotics being very dependent on China.
In metal refining too, its market shares are considerable. Biden could also expand the scope of tariffs on critical metals beyond the semiconductor value chain. It can go very far.
Should Europe take inspiration from the American strategy?
Biden’s announcements expand the range of possibilities. If the United States applies 100% taxes, why not us? My colleague Apolline Menut, economist specializing in Europe at Carmignac, showed that even with the measures proposed on Chinese electric vehicles, these cars remain more competitive on the European market. So we can go much further. The United States is setting an international precedent.
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