On May 14, according to the official website of the White House, the United States released the results of the four-year review of the additional Section 301 tariffs on China and announced that on the basis of the original Section 301 tariffs on China, it would further increase its tariffs on electric vehicles, lithium batteries, photovoltaic cells, etc. imported from China. Additional tariffs will be imposed on key minerals, semiconductors, steel and aluminum, port cranes, personal protective equipment and other products.

It is understood that the specific tariff increases are as follows:

• Semiconductor tariffs increased from 25% to 50%

• Tariffs on lithium batteries will rise from 7.5% to 25%

• Tariffs on electric vehicles will increase from 25% to 100%

• Tariffs on solar cells will increase from 25% to 50%

• Tariffs on certain steel and aluminum products increased from 0-7.5% to 25%

Tariffs on natural graphite, permanent magnets and certain other critical minerals increased from zero to 25%

The Biden administration's additional tariffs on China (Source: Bloomberg)

01 What are the impacts?

The most direct impact of the additional tariffs imposed by the United States on China is to make it more difficult for related products to be exported from China to the United States. Taking semiconductors as an example, it will be more difficult for companies that want to enter the U.S. market.

On the one hand, the increase in tariffs will directly increase the cost of Chinese semiconductor products entering the U.S. market and increase the difficulty of market access; on the other hand, the U.S. move will also weaken the competitiveness of domestic semiconductor companies in the U.S. market and affect their competitiveness in the U.S. market. U.S. market share.

But in fact, the increase in tariffs may not have a big impact on most domestic companies. Nomura Securities analysts said in a report that China's exports of electric vehicles, medical supplies and semiconductor products to the United States accounted for only 5.9% of China's total exports to the United States, accounting for less than 1% of China's total exports.

In other words, the industries subject to additional tariffs mentioned above are not the bulk of China's exports to the United States.

It is undeniable that many semiconductor companies in China are deploying in the U.S. market, and they will be greatly affected by this tariff increase.

Therefore, in the face of tariff barriers in the U.S. market, domestic semiconductor companies may need to adjust their market strategies in a timely manner to reduce their dependence on the U.S. market. At the same time, in order to offset the cost pressure brought by tariffs, companies may need to increase investment in R&D and innovation to enhance competitiveness by improving the technical content and added value of products.

For some companies that have already entered the U.S. market, they may need to consider some options to avoid high tariffs, such as setting up production bases in other countries or using third-country exports.

And it is worth noting that domestic foreign-funded enterprises also have to face tariffs imposed by the United States.

It is understood that during the period when tariffs were implemented, the exports of foreign-funded enterprises accounted for a high proportion of China's total exports, accounting for 38.7% in 2019. Although compared with 2019, the proportion will drop to 28.6% in 2023, but it also means that these foreign-funded enterprises have to face the United States directly. Home-imposed tariffs.

In addition, according to the special press conference on the "14th Five-Year Plan" Utilization of Foreign Investment Development Plan and Stabilization of Foreign Investment held by the Ministry of Commerce in 2021, among the enterprises with import and export performance in my country, the number of foreign-funded enterprises accounts for about one-sixth, contributing nearly 40% of imports and exports, while the exports of mechanical and electrical products and high-tech products account for about 50% and 60% respectively. This means that in areas where the United States imposes heavy tariffs on China, foreign-funded enterprises contribute a significantly higher proportion of exports. in general.

02 What is the situation of China's semiconductor import and export?

China's semiconductor import and export volume has always been relatively high, especially in terms of imports. Integrated circuits have been the largest imported commodity for 10 consecutive years, but there has been a downward trend in recent years.

According to data from the General Administration of Customs, in terms of imports, China imported a total of 479.56 billion integrated circuits in 2023, a year-on-year decrease of 10.8%; the amount was 2.45907 billion yuan, a year-on-year decrease of 10.6%. Diodes and similar semiconductor devices will be imported in 2023 at 452.96 billion pieces, a year-on-year decrease of 23.8%; the amount will be 165.81 billion yuan, a year-on-year decrease of 13.7%. In addition, semiconductor manufacturing equipment, integrated circuit manufacturing and equipment have declined to varying degrees.

Industry analysts believe that China's weak imports of integrated circuits and semiconductor equipment reflect global economic headwinds in 2023, especially the weakness of China's smartphone and laptop markets. But at the same time, part of the reason is that domestic companies have increased local chip production and the market has reduced its reliance on imported chips.

According to data from the General Administration of Customs, chip production in mainland China increased in 2023. From January to October, the cumulative domestic production of integrated circuits was 276.53 billion units, a year-on-year increase of 0.9%. Among them, integrated circuit production in October was 31.28 billion units, a year-on-year increase of 34.5%, setting a new high in recent years.

Broken down into different components, the cumulative import value of central processing unit components from January to November increased by 54.9% year-on-year, while the import value of storage components decreased by 33.0% year-on-year. It can be judged that the central processing unit has a high degree of external dependence, and my country's independent control over integrated circuit storage has improved.

In terms of exports, my country will export a total of 267.83 billion integrated circuits in 2023, a decrease of 1.8% from 2022; the export value will be 956.77 billion yuan, a decrease of 5.0% from the same period last year.

It is understood that in the past three years, the number of integrated circuit exports has declined since 2022. However, analyzing the quantity and value of integrated circuit exports in the past three years, there is a trend of decreasing quantity and increasing unit price. From 2021 to 2023, the export unit prices will be 3.2 yuan, 3.7 yuan, and 3.6 yuan respectively, and the value will continue to grow.

However, starting from 2024, the quantity and value of my country's semiconductor import and export will show a growth trend.

Taking integrated circuits as an example, imports from January to March 2024 were 121.5 billion units, a year-on-year increase of 12.7%, and exports were 62.4 billion units, a year-on-year increase of 3%.

03 Who will the tariffs actually affect?

As mentioned above, in the semiconductor industry, China’s export share to the United States is not large, so the actual impact of this increase in tariffs is not large.

For the electric vehicle industry, which has been raised to 100% tariff, the impact does not seem to be significant.

According to data from the China Chamber of Commerce of Machinery and Electronics, China will export a total of 1.3219 million pure electric passenger vehicles in 2023, accounting for 83.4% of total new energy vehicle exports, but the export destination markets are mainly European and Middle Eastern markets.

Industry insiders also said that the proportion of Chinese electric vehicles exported to the United States is very small. Customs data shows that in the first quarter of this year, the number of electric vehicles exported from China to the United States shrank sharply to less than 2,000. The U.S. market's share of China's global electric vehicle market has dropped to less than 0.5%. Such a small export volume will basically not Affected by the U.S. tariff increase.

However, it is understood that the US's tariff increase may be based on Biden's personal career considerations. Because the U.S. election is approaching, it has issued policies out of campaigning needs and expressed its political opinion of imposing tariffs on the manufacturing industry in order to gain the votes of U.S. manufacturing workers, including automobiles.

Therefore, overall, the impact of this tariff measure on China's semiconductor and automobile industries will be limited.

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