Investors Brace For Biden’s Imminent Tariffs On China EVs

The Biden administration is expected to make a major announcement on China tariffs as soon as next week that will impact semiconductors, solar power, and electric vehicles, according to Bloomberg, citing people familiar with the matter. While the possibility of additional tariffs has been widely known, the specific industries to be targeted have now been identified. Moreover, Beijing will likely release angry comments after Biden’s speech next week, followed by a tit-for-tat response. 

Two of the people said the decision to hit China’s “new three” green goods comes after a review of Section 301 tariffs, which were first implemented under former President Trump in 2018. The tariffs primarily target electric vehicles, batteries, and solar cells, with existing tariffs being maintained. They said the announcement is planned for Tuesday. 

The Biden administration is making a bold move against Beijing in an election year as polling data spirals lower as Bidenomics has become a complete failure. It’s not us just saying this. Billionaire investor and Duquesne Family Office Chairman & CEO Stan Druckenmiller told CNBC’s Joe Kernen earlier this week that Bidenomics is a disaster. 

Last month, the president said he would impose  25% tariffs on Chinese steel and aluminum. Earlier this week, the administration said it would revoke Intel and Qualcomm’s export license to supply semiconductors to Chinese firm Huawei. 

If China were to retaliate, in a tit-for-tat effort, they could hit Elon Musk’s Tesla or continue reducing US agricultural exports of corn and soybean. 

“Instead of correcting its wrong practices, the United States continued to politicize economic and trade issues,” Chinese Foreign Ministry spokesperson Lin Jian said Friday, adding, “To further increase tariffs is to add insult to injury.” 

Meanwhile, if reelected, Trump has promised to hit China with a tsunami of tariffs, vowing a 60% tax on all Chinese imports. 

US Senator Chuck Grassley, an Iowa Republican, warned Beijing will respond:  

“We know how China reacted when Trump put tariffs on … and they hit agriculture with it. I can’t be sure that China would hit agriculture the same as they did in the Trump ones, but they’re going to hit back.”

In markets, Chinese shares of solar firms fell on the news:

Longi shares drop 1.8% in Shanghai, JA Solar -1.7% in Shenzhen, Xinyi Solar -3.8% in Hong Kong

The yuan weakened in both onshore and offshore markets, while CSI 300 Index fell: 

USD/CNH gains 0.1% at 7.2270, pair on track to rise 0.5% on the week, biggest weekly advance since the week ended March 22

USD/CNY rises 0.1% at 7.2251

Bloomberg’s dollar spot index steady; USD/HKD is little changed at 7.8139

CSI 300 Index, benchmark of onshore China stocks, falls as much as 0.6% before paring about half of its decline.

“It’ll definitely cause investors to pause on stocks that are potentially exposed,” said Xin-Yao Ng, director of investment at abrdn. He added, “Everyone knows it’s a risk.” 

Here’s what other Wall Street analysts are saying (list courtesy of Bloomberg):

AllianceBernstein (John Lin)

We are not overly concerned about that because to us geopolitics is now a structural part of investing in China” 
“Everybody understands that there will be periods where things get a little worse and there will be periods where things get a little better. And that fluctuation to us is really an opportunity to add or reduce risk but not a reason to stay away from the market overall”

ANZ Banking Group (Khoon Goh)

News of the US imposing more tariffs against some Chinese imports has seen the yuan weaken slightly
The threat of more tariffs have been known, but if the final outcome is for a more targeted approach, then there is unlikely to be much of a lasting effect on the yuan

Maybank (Fiona Lim)

“You can’t say that this was not expected. Such trade-war era kind of tensions have been in the making ever since Trump spoke about imposing 60% tariff”
People’s Bank of China is keeping the yuan in a tight grip via the fix and offshore liquidity management and that may limit bearish swings to a certain extent
“USDCNH-USDCNY premium could widen in such an environment”

TD Securities (Alex Loo)

It wasn’t a total surprise to us. Trade tensions would likely increase if Biden puts heavy tariffs on China’s products in the coming weeks
We anticipate that yuan would trade on the backfoot given such unfavorable news but expect the PBoC to continue to intervene and smooth out any excessive weakness in the CNY 
Regional currencies are more sensitive to moves in the USD path now since China has been effectively anchoring the yuan

Eastspring Investments (Ken Wong)

This news on the proposed tariffs in particular for Chinese EVs was widely expected
Even so, we are seeing a bit of a pullback in EVs and renewable stocks in HK/China this morning

Saxo Capital Markets (Charu Chanana)

The tariff announcement is a reminder that geopolitics remains a key aspect in considering exposure to China market, and valuations or government support measures are not the only catalysts
This means valuations may continue to “take the ebb and flow of geopolitics into account” and also “increased exposure to domestic-oriented sectors”

IG Markets (Hebe Chen)

“The US’s latest tariff hike on China EV is poised to trigger unprecedented shockwaves through the industry” 
 This move not only deals a crippling blow to China’s new strategic ambitions, but it also marks a potential tipping point, broadening the trade war between Washington and Beijing to a new level 
For Chinese stocks, particularly EV companies, the new tariff decision is akin to a looming tsunami. Investors are bracing for a significant upend as the full impact of the new tariffs unfolds

Shanghai Jade Stone Investment Management (Chen Shi)

We’ve long been expecting more anti-China rhetoric and policies to be amplified closer to the election, and though this is surely a piece of negative news, to us, and to investors in general, the marginal effect is diminishing 
“China has proven through the years that its core edge lies in a strong and comprehensive industrial structure, and that cannot be challenged with tariffs” 
There are plenty of ways for companies to work around this

Deepening a trade war with China comes as Biden’s polling data is absolutely awful. 

This shows Biden’s polling data versus headlines in corporate media featuring trade war-related news.  

A tough-on-China stance could be a new strategy the administration attempts to win back voters.

… it won’t work.