The investments face new U.S. factories with a familiar challenge

The Biden administration has begun pumping more than $2 trillion into U.S. factories and infrastructure, investing vast sums in an effort to strengthen U.S. industry and fight climate change.

But the effort faces a familiar threat: a wave of low-priced products from China. That's drawing the attention of President Biden and his aides, who are considering new protectionist measures to ensure U.S. industry can compete with Beijing.

As American factories churn to produce electric vehicles, semiconductors and solar panels, China is flooding the market with similar goods, often at significantly lower prices than American competitors. A similar influx is also hitting the European market.

U.S. executives and officials claim China's actions violate global trade rules. The concerns are leading to new calls in America and Europe for higher tariffs on Chinese imports, potentially escalating the already contentious economic relationship between China and the West.

The Chinese imports reflect a surge that undermined the Obama administration's efforts to boost domestic solar production after the 2008 financial crisis and forced some U.S. startups out of business. The government retaliated with tariffs on solar equipment from China, sparking a dispute at the World Trade Organization.

Some Biden officials are concerned that Chinese products could again threaten the survival of U.S. factories at a time when the administration is spending huge sums to boost domestic manufacturing. Administration officials appear likely to increase tariffs on electric vehicles and other strategic goods from China as part of a review of tariffs former President Donald J. Trump imposed on China four years ago, according to people familiar with the matter. case. That review, which has been underway since Mr. Biden took office, could finally be completed in the coming months.

Congress is also calling for more protection. In a letter dated January 5 Speaking to the Biden administration, bipartisan members of a House committee expressed concern that China would flood the United States with semiconductors. Lawmakers wondered whether the government could impose a new “component” tariff that would tax a chip imported into another finished product.

That followed A November letter in which members of the same committee recommended that the Biden administration consider a new trade case over China's electric vehicle subsidies, which could result in additional tariffs on cars.

U.S. Trade Representative Katherine Tai told lawmakers she shared her concerns about Chinese practices in the electric car industry, according to a Jan. 4 letter shared with The New York Times. Ms. Tai told the committee that the administration “must work with U.S. companies and labor unions to identify and deploy additional measures to help overcome Chinese state-owned industrial targeting in this sector.”

The United States has maintained tariffs on hundreds of billions of dollars of Chinese products over the past five years, seeing this as a way to offset Beijing's ability to undercut American manufacturers by selling cheaper products to the United States. Mr. Biden has sought to further help American companies with billions in subsidies aimed at boosting U.S. production of clean energy technology such as solar panels, electric vehicles and semiconductors.

Yet Chinese industrial policy spending still persists far exceeds that of the United States. Faced with an economic slowdown and a gradual bursting of the real estate bubble, the Chinese government has recently redoubled its efforts to promote exports and support the factory sector.

Beijing is mainly focusing on investments in high-tech products of strategic importance, such as electric vehicles and semiconductors, said Ilaria Mazzocco, a senior fellow in Chinese business and economics at the Center for Strategic and International Studies, a Washington think tank.

“Those are the types of industries the rest of the world wants too,” she said.

Part of China's success comes from its larger market – which gives Chinese companies the scale and ability to hone their products – along with its vast pool of talented engineers. China sold approx 6.7 million fully electric vehicles last year, for example, compared to approx 1.2 million units in the United States.

The Chinese government has said it competes fairly and described the US trade measures as protectionist.

But Wendy Cutler, vice president of the Asia Society Policy Institute and a former trade negotiator, said China's clean energy and semiconductor industries have received a lot of state support, in the form of tax credits, access to cheaper energy and equity injections.

“The list goes on,” she said. “If Chinese companies use these types of systems, it will only lead to overcapacity.”

In the United States, when supply of solar panels exceeds demand, factories shut down their lines, lay off workers and try to realign capacity, said Michael Carr, executive director of the Solar Energy Manufacturers for America Coalition, representing the USA. established solar energy producers.

“It doesn't work that way in China,” he said. “They just kept building and building and building.”

According to analysts at Wood Mackenzie, an energy research firm, China invested more than $130 billion in the solar sector last year and is positioned to bring enough wafer, cell and panel capacity online this year to meet annual global demand to be met until 2032.

At the end of last month, two American companies filed a legal challenge against a temporary moratorium the Biden administration placed on tariffs on imported solar panels.

China's heavy investments in semiconductors, including a new $40 billion fund to prop up the industry are also troubling companies investing in new U.S. chip facilities.

China accounts for a relatively small share of global chip production – only approx 7 percent in 2022. But experts say the country spends more on its semiconductor industry than the United States and Europe combined, and that it could become the largest chip manufacturer in the world for the next ten years.

Dan Hutcheson, the vice chairman of research firm TechInsights, said the fear was that China would do for semiconductors what it did for shipping, solar cells or steel: build up excess capacity and then put foreign competitors out of business.

“It's a legitimate fear because the weakness of Western companies is that they have to be profitable,” he said.

The United States can – and does – impose tariffs on Chinese exports that are unfairly subsidized or sold into the U.S. market for less than they cost to produce. Earlier this month, the country lowered import duties more than 120 percent on Chinese steel.

But even if Chinese goods are blocked from the United States, they can flow to other countries. That pushes global prices to levels at which U.S. companies say they cannot compete, and pushes U.S. companies out of foreign markets, reducing their revenues and competitiveness.

Some say the United States should just do that embrace cheap Chinese-made solar panels and older chipsrather than imposing tariffs that raise costs for American consumers and factories that use imported inputs.

Scott Lincicome, a trade expert at the libertarian Cato Institute, said it didn't make economic sense for the United States to try to outdo China, especially on non-military-related goods.

“Is the correct answer, do we do our own subsidies? Or should we be a better economist and say, 'We're actually letting foreign governments subsidize our consumption like crazy, we don't really care?'” Mr Lincicome said.

But most officials in Washington now see China's dominance in key markets as a significant risk, given rising tensions between the countries and China's imposition of Certainly export bans. China produces about 80 percent of the world's solar panels, almost 60 percent of electric vehicles and more than 80 percent of electric vehicle batteries.

The average price for an electric vehicle in China is about $28,000, compared to about $47,500 in the United States, according to Dunne Insights, an electric vehicle market research firm. In the fourth quarter of last year, Chinese car manufacturer BYD delivered results more electric vehicles than Tesla, surpassing the American company for the first time.

Chinese electric vehicles have become extremely popular in Europe, prompting the European Union start an investigation in illegal subsidies. So far, Chinese electric vehicles have not gained a foothold in the United States, which imposes high tariffs on these imports.

As part of the climate law that Mr. Biden signed in 2022, buyers of electric vehicles that are primarily sourced and assembled in the United States, rather than in China, will also receive lucrative tax credits. Still, some officials worry that Chinese vehicles are generally so much cheaper than American alternatives that consumers might choose to buy them anyway.

Keith Bradsher contributed reporting from Shanghai.