Chinese Enterprises "Go Global" or "Hit a Reef"? Interpretation of the Latest US Tariff Policy

Do Chinese Enterprises "Go Global" Only to "Hit the Rocks"? Interpretation of the Latest US Tariff Policy

Policy Interpretation

In February 2025, US President Trump signed an executive order announcing a 10% tariff hike on all Chinese exports to the US and the removal of the $800 de minimis exemption for goods originating from China. Coupled with the implementation of Section 301 in September 2024, which raised tariffs on Chinese automotive lithium-ion battery products to 25%, NEV products to 100%, and ESS batteries to 25% starting in 2026, the US Trade Representative's Office (USTR) issued a statement on October 7, 2024, regarding the EU's anti-subsidy duties on EV imports from China. The statement expressed that the US views the EU's measures as necessary to protect European industries and workers and looks forward to continued cooperation with the EU and other market economies on such critical issues.These measures indicate that the US aims to establish high tariff barriers in collaboration with other markets to curb Chinese goods and services exports, significantly increasing the tariff costs for Chinese enterprises.

Impact Analysis

In the future, Chinese battery and NEV products entering the US will be subject to "customized" tariffs rather than trading under the established WTO framework. Trump's "America First Trade Policy" mentions evaluating the US-China permanent normal trade relations. In response, the US Congress introduced the "Fair Trade Restoration Act" on January 24, 2025, proposing to revoke China's permanent normal trade relations. According to the act, if the US terminates China's permanent normal trade relations, Chinese exports to the US will no longer enjoy the most-favored-nation (MFN) tariff rate (currently averaging 2.2% in the US, compared to an average of 42% for non-MFN rates). Despite this, US demand for Chinese lithium batteries remains robust. According to the China Chemical and Physical Power Industry Association, China's lithium battery exports to the US reached $15.315 billion in 2024, making the US China's largest export market for lithium-ion batteries, accounting for 25% of China's lithium-ion battery export value. Due to the immaturity of some US companies' supply chains and their high dependence on Chinese products, Chinese battery products still hold strong competitiveness in the US market. Meanwhile, Chinese NEVs, with significant price and technological advantages, have seen leading automakers like BYD, Great Wall, and Chery establish localized production in Latin America in recent years.Thus, while the US tariff hikes may help reduce its trade deficit and increase government revenue in the short term, their short-term impact on Chinese enterprises is limited.

Countermeasures

Following Trump's announcement of tariff hikes on China, China promptly introduced multiple countermeasures against the US. The Ministry of Commerce stated that China has filed a complaint with the WTO dispute settlement mechanism regarding the US tariff measures. Additionally, the Ministry of Commerce and the General Administration of Customs issued a notice imposing export controls on materials such as tungsten, tellurium, bismuth, molybdenum, and indium, while reducing or canceling export tax rebates for battery-related materials. The Customs Tariff Commission of the State Council announced that starting February 10, a 15% tariff would be imposed on US-origin coal and liquefied natural gas, and a 10% tariff on crude oil, agricultural machinery, large-displacement vehicles, and pickup trucks. Furthermore, restrictions were placed on the export of key R&D technologies in the battery industry, such as battery materials including LFP, iron phosphate, LFMP, and lithium extraction technologies.Although the countermeasures are relatively restrained and limited in scope, they precisely target the US's relatively advantageous industries and critical minerals required for high-tech materials, further intensifying competition in the new energy sector.Based on the previous round of Trump's tariff hikes, there is a high probability that the US will adopt a gradual approach to increasing tariffs rather than imposing large-scale hikes at once, using tariff hikes as leverage in trade negotiations with China. Additionally, Trump mentioned during his campaign that besides directly imposing tariffs on Chinese exports, he would also levy hefty tariffs on vehicles produced by Chinese enterprises in overseas factories and exported to the US via Mexico. Therefore, it is possible that Trump may impose additional tariffs on products from Chinese enterprises' factories in third countries in the future.Supply surplus, competition in technological pathways, and geopolitical uncertainties will reshape the global supply chain. Some globalizing enterprises, to mitigate trade policy uncertainties, may accelerate their pace of going global, increasing overseas investments to meet US market demands with overseas capacity. Consequently, domestic capacity may face further surplus, exacerbating downward pressure on prices.

Chinese enterprises need to strengthen technological innovation and global expansion to address these challenges. For enterprises with overseas factories, it is essential to comply with the principle of substantial transformation when shifting supply chains and changing the origin of goods to avoid simple assembly processes that result in exported goods still being recognized as originating from China. Enterprises should also stay updated on the latest US rulings on origin determination and make timely adjustments. Additionally, they can apply for origin rulings from the CBP (Customs and Border Protection) before export to ensure supply chain compliance. Enterprises with low dependence on the US market can optimize their export structure and enhance supply chain risk resistance, focusing on improving supply chain resilience and strengthening the global connectivity of the industry chain.They should target EV sales in Southeast Asia, strengthen cooperation with ASEAN countries in electronic information and automotive manufacturing, and enhance collaboration with the EU in high-end manufacturing and new energy sectors.Accelerating the formation of a multipolar supply chain and shifting from low-cost dependency to localization and diversification strategies will drive enterprise transformation.

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SMM New Energy Research Team

Cong Wang 021-51666838

Rui Ma 021-51595780

Disheng Feng 021-51666714

Yanlin Lü 021-20707875