In an era of economic decoupling and protectionism, global investors must closely monitor these developments. They signal not only immediate shifts in market dynamics but also longer-term structural changes in global supply chains.
The growing tariff landscape: a shift in policy direction
A series of tariff increases in 2024 targeting Chinese exports to Western markets has raised alarms, particularly among investors in the EV and high-tech sectors. The U.S., Canada, and the EU have increased scrutiny of Chinese trade practices due to concerns that state-driven subsidies give Chinese companies an unfair global advantage in global markets.
In May 2024, the U.S. escalated its trade measures by imposing a significant 75 percent tariff increase on Chinese-made EVs, effectively raising tariffs from an initial 25 percent to 100 percent. This move was justified by the U.S. government’s claims of anti-dumping practices and overcapacity risks posed by heavily subsidised Chinese production. The underlying motive, however, may go beyond protecting domestic automakers, potentially reflecting a broader effort to limit China’s growing influence in key technological sectors – many of which the US consider to be vital for national security and economic sovereignty. With Trump’s return to the presidency, these policies are expected to continue and potentially evolve in response to shifting trade priorities.
Canada followed suit in August 2024, implementing a 100 percent surtax on Chinese EVs and imposing additional tariffs on Chinese steel and aluminium. Similar to the U.S., the Canadian government framed this decision within the context of levelling the playing field for domestic manufacturers and reducing the impact of China’s state-subsidised industries.
The EU took a more measured approach before recently announcing its final tariff decisions, which will remain in effect for the next five years. For context, the European Commission first launched a year-long anti-subsidy investigation into Chinese EVs in October 2023, focusing on major manufacturers such as BYD, Geely, and SAIC as key examples of the broader group of companies under scrutiny. The investigation assessed whether these Chinese producers were benefiting from state-driven subsidies that provided an unfair competitive advantage.
The EU’s final tariff decisions, shaped by a review of provisional rates, stakeholder input, and a slightly divisive vote between members, highlighted its relatively careful balancing of trade protection and international relations. It first announced provisional tariffs in August 2024 with duties ranging from 17 percent for BYD, 19.3 percent for Geely, and 36.3 percent for SAIC. Following a review of feedback from stakeholders, the European Commission made slight adjustments to these rates in its final decision published in October 2024; duties for BYD remained the same at 17 percent, whereas the rates were reduced to 18.8 percent for Geely, and 35.3 percent for SAIC. Non-cooperating manufacturers still face the highest tariff rate of 36.3 percent. The final downward adjustments reflected the EU’s strategic approach to trade, aiming to still protect its domestic industries while attempting to foster a balanced relationship with China.
Economic implications: how tariffs impact global supply chains
For global investors, understanding the ripple effects of these tariffs is crucial for assessing risk in both Western and Chinese markets. In the short term, they may provide relief to U.S., Canadian, and European manufacturers by reducing competition from lower-priced Chinese imports.
However, the long-term implications are more complex. While tariffs may shield domestic industries, they also drive up costs for consumers, making products less affordable. Additionally, the tariffs could impede the growth of the green economy by limiting access to sustainable alternatives, such as low-cost EVs.
As tariffs make Chinese-made goods less attractive and amidst the global push for sustainable alternatives, it is likely that Western nations will intensify efforts to bolster domestic manufacturing. This shift could lead to an increase in local production of EVs and other high-tech products, contributing positively to trade balances in Western countries. That said, it may also provoke retaliatory measures from China, further complicating the global trade environment.
Chinese response: adapting to a changing global trade order
In response to Western tariffs, Chinese companies are also increasingly looking to diversify their supply chains and establish manufacturing bases abroad. Firms like Geely and BYD are ramping up production in markets outside of China. For example, Polestar, owned by Geely, has accelerated its plans to produce vehicles in the U.S. and South Korea. Their strategy highlighted how Chinese companies are adapting to new trade realities by shifting production to avoid the punitive tariffs levied by the West.
Moreover, China is expected to employ retaliatory measures against the West, potentially imposing tariffs on Western exports or leveraging its control over key resources like rare earth metals, which are crucial for industries ranging from automotive to electronics. Such tactics could further destabilise global trade relations, leading to a reduction in cross-border investments and a shift toward more localised production strategies in key industries.
Strategic implications for investors: navigating the new normal
The evolving tariff tensions between China and Western economies are reshaping the global trade landscape, creating both challenges and opportunities. For investors, understanding the nuances of these shifts is essential for navigating the increased volatility and complexity in the market.
One key focus is supply chain diversification. As countries seek to reduce their dependency on China, regions like Southeast Asia, India, and even the U.S. and Europe are emerging as new hubs for production and manufacturing. Companies that can quickly pivot to these regions and establish local production capacity stand to benefit in the long run.
In particular, sectors dependent on high-tech supply chains, such as semiconductors, electronics, and renewable energy technologies, face additional challenges. Due to their strategic importance, these industries are particularly vulnerable to geopolitical tensions and the fragmentation of global supply chains. As countries look to decouple from China, disruptions in these critical sectors could become more pronounced, requiring investors to adopt a more nuanced approach to managing risk in these sensitive industries.
At the same time, investors must also account for potential retaliatory tariffs and broader economic disruptions. While Western tariffs on Chinese imports may offer short-term advantages, the risk of retaliatory actions — such as restrictions on exports or tariffs on Western goods — remains high. Monitoring these dynamics will be crucial to understanding how global markets may react.
Preparing for a shifting global trade landscape
The ongoing tariff tensions between China and Western economies represent a defining moment for global trade. While these policies may provide short-term advantages to domestic industries in the U.S., Canada, and Europe, they also create opportunities for reshaping global supply chains and fostering new trade relationships. For investors, staying informed on these dynamics is essential for navigating the evolving landscape and positioning themselves for success in an increasingly complex global market.
If you have questions about navigating these changes or want to learn more about how our services can support your investment and supply chain strategies, please contact us.