Protectionism and rhetoric escalate tensions in trade conflicts
The ongoing trade tensions intensified as President Donald Trump implemented a new round of tariffs on imported cars into the US. This latest move added to existing tariffs on steel, aluminum, and Chinese imports. Starting on April 2nd, finished cars will face a 25% tariff, with additional tariffs expected on car parts later on. These actions are causing immense challenges for industries with intricate supply chains, like the automotive sector, where components often traverse multiple locations before becoming a final product.
This complexity was highlighted through a specific example involving piston rods manufactured in Pennsylvania from Tennessee aluminum, exported to Canada for polishing, then to Mexico for assembly into pistons, and finally to Michigan for installation in engines. These new tariffs are projected to raise the costs of some cars by up to $10,000 due to the increased expenses incurred along the supply chain.
President Trump’s oversimplified notion that building cars in the US eliminates tariffs disregards the intricacies of modern production processes. The US Trade Representative is exploring potential solutions to mitigate the impact of these tariffs on products with less complex supply chains. One proposal under consideration involves imposing a $1.5 million charge on Chinese-built ships for each call at a US port. This move aims to counter China’s perceived market dominance and manipulation in the maritime sector.
Former Federal Maritime Commission member Carl Bentzel highlighted the potential repercussions of the proposed penalties on Chinese ships. He cautioned that such charges could lead to congestion at major US ports while adversely affecting medium and smaller ports. Bentzel advised a per-voyage approach to avoid distortions within the sector.
Concerns about China’s market manipulation have been further amplified by the COVID-19 pandemic’s disruptions to global supply chains. In a letter to President Biden, Bentzel advocated for investing funds accrued from penalties on Chinese ships into Puerto Rican ports like San Juan and Ponce. These investments could bolster the island’s manufacturing capabilities and serve as a nearshoring alternative to China and Mexico.
Bentzel’s analysis underscores the strategic importance of reducing America’s overreliance on Chinese manufacturers. The prospect of substantial US imports falling under China’s control, especially in the event of Beijing gaining control of Taiwan, is a significant concern. Bentzel also linked the Belt and Road initiatives to Chinese ambitions for global dominance in shipbuilding and shipping markets.
The US government’s Section 301 proceedings and potential fines on Chinese vessels aim to revitalize domestic shipbuilding and repatriate industries for American workers. By levying penalties on Chinese-built ships and cranes, the US intends to reclaim its status in the shipbuilding industry, lost since the country’s technology transfer to Japan and South Korea in previous decades.
In Bentzel’s view, redirecting financial resources from fines towards reestablishing a commercial shipbuilding industry in the US represents a pragmatic step towards reducing reliance on foreign manufacturers. This strategic shift would not only bolster domestic industry but also safeguard national security interests against potential threats posed by foreign powers.