On January 23, 2018, President Donald Trump approved two decisions imposing tariffs and quotas on solar cells and washers. These tariffs may adversely affect U.S. consumers through increased import prices and are likely to spark retaliatory polices by many of the U.S. trading partners in Asia. This began when the current administration approved safeguard measures, pursuant to Section 201 of the Trade Act of 1974, against imports of large residential washing machines and solar cells. The recent investigation is expected to affect South Korean exports including Samsung, LG, and Hanwha Q-Cell, along with other countries including China, Malaysia, and Vietnam.
Solar cells and modules will see a 30 percent tariff applied after the first 2.5 gigawatts. Large residential washers will be tariffed at 20 percent for the first 1.2 million units, and at 50 percent for all additional imports. Washer parts will be tariffed at 50 percent after the first 50,000 units. These tariffs will adversely affect not only U.S. importers and American consumers, but there could also be retaliation from the exporting countries. Recently, South Korea announced a complaint filed with the World Trade Organization (WTO) to fight the tariffs, and South Korean trade minister Kim Hyun-chong expressed confidence in the decision being overturned.
The WTO ensures countries comply with the rules on non-discrimination and Most Favored Nation Principles. After George W. Bush imposed tariffs on steel imports in 2002 under Section 201, the European Union consulted with the WTO in order to retaliate with tariffs on U.S. goods including oranges and textiles. The U.S. lifted the imposed tariffs by 2003, resulting in a huge win for the European Union. In addition to South Korea’s filed consultation requests with the WTO, China has threatened to retaliate by increasing tariffs on American aviation, automobiles, and already imposed on soybeans in early February 2018.
Chinese measures could equally be as broad sweeping. China is most likely to retaliate through the various channels below, in addition to imposing retaliatory tariffs on U.S. exports of soybeans and autos to China:
- Banning the importation of genetically modified organisms from the United States;
- Delaying the investment and trade deals that were signed by Xi Jinping and Trump last November;
- Tapping into other markets that have a comparative advantage over the United States. Brazil’s share of soybean exports to China has already hit a record high, accounting for 53.3 percent of total purchases. S. sales came in at only 32.9 million tons, or 34.4 percent of Chinese imports.
By using tariffs pursuant to U.S. trade codes and forgoing leveraging the WTO to resolve grievances, the U.S. risks sparking a trade war that could expand beyond solar cells and washing machines. If the U.S. pursues protectionist policies, retaliation measures from affected countries could damage both domestic companies and consumers. The use of tariff’s to remedy grievances risk creating a “trade war” with one of the U.S.’ largest trading partner (China) and one of its most strategic allies in Asia (South Korea) at a critical times in the face of North Korean nuclear proliferation.
About the Author: Cherie Walterman is a frequent contributor to FAO Global Articles and special projects. She focuses on International Trade & Policy and has worked with some of Washington, DC’s most prestigious Law Firms. She has a B.A. in International Affairs and is currently working towards a Masters of Public Policy at George Mason University.
About the Author: Brandon Hughes is the Founder of FAO Global and focuses on International Security & Business Intelligence. He has previously worked with the U.S. Army, the Carnegie-Tsinghua Center for Global Policy, and Asia Society. He is a combat veteran and has conducted in-country research in a wide variety of emerging markets in Asia and Europe. Brandon holds a Masters of Law in International Relations from Tsinghua University, Beijing and has extensive overseas experience in the non-profit, government, and business environments.
To read more about how China may retaliate against the U.S. by targeting Boeing, check out our article on the Chinese Aviation Market: https://www.faoglobal.com/chinese-aviation-and-the-wto-a-brief/
