Summary of Key Points
Recently, the United States plans to impose Section 301 tariffs on 60 economies, with a tariff rate of 12.5% applied to China. However, this move is essentially intended to provide a long-term legal basis for the previous temporary tariffs, and the overall level of tariffs will not exceed the limits set during Sino-US economic negotiations. Meanwhile, the European Union (EU) has tightened its policies against China in three areas: border trade, corporate scrutiny, and supply chain access. The potential for long-term institutional friction with the EU is more concerning, but internal disagreements within the EU make it difficult to reach a unified approach towards China.
Detailed Analysis
1. US Section 301 Tariffs: "Changing the Name of the Old Tax," Limited Impact
The new tariffs imposed by the US are not about introducing new measures but rather continuing existing ones:
- Background: Previous tariffs imposed by the Trump administration under the International Emergency Economic Powers Act (IEEPA) were overturned by the Supreme Court, as the authority to impose tariffs lies with Congress and the president cannot use a state of emergency as an excuse. Subsequently, temporary tariffs of 10% were implemented under Section 122 of the Trade Act of 1974, which are only valid for 150 days (until July 23, 2025).
- Current Action: The US is using the Section 301 investigation (under the pretext of "forced labor") to extend these temporary tariffs. The 12.5% tariff rate for China actually continues from the previous temporary measure. Moreover, Sino-US negotiations have clarified that the tariff level cannot exceed the previous limits, so the overall impact will not be greater than before; it is more of a legal continuation of existing policies.
In other words, the US is simply using a different rationale to continue collecting the same taxes; the total amount does not increase.
2. EU's Approach towards China: Three Layers of "Stricter Restrictions" than Tariffs
The EU is not just raising tariffs but is imposing more comprehensive restrictions from three aspects:
- Border Trade: Anti-dumping and anti-subsidy measures (e.g., on electric vehicles and steel), which directly increase import costs.
- Corporate Level: The Foreign Subsidies Regulation (FSR) examines whether companies have received subsidies from the Chinese government. This can affect activities such as purchasing EU companies, bidding, or selling goods; any instance of "unfair competition" may lead to restrictions.
- Supply Chain Level: The EU requires companies to localize their operations (e.g., diversify suppliers of key raw materials and produce in Europe); otherwise, they may be barred from accessing vital EU supply chains or receive subsidies.
These rules, once enacted, are difficult to change and are more permanent and systematic than tariffs. For example, the FSR process involves companies disclosing extensive financial information and could even result in them being excluded from EU public projects.
3. Internal Disagreements within the EU
The 27 EU member states do not all agree on how to handle China:
- Pro-Tightening Countries: France, Italy, and other five nations (whose manufacturing sectors are heavily impacted by Chinese competition, such as in the electric vehicle industry).
- Opposing/Resistant Countries: Germany (which relies heavily on the Chinese market for its automotive and machinery industries) and Hungary (dependent on Chinese investment).
- Example: In the 2024 vote on anti-subsidy measures for electric vehicles, five countries, including Germany, opposed the proposal, while twelve abstained. Although the measure was ultimately passed, the disagreement was evident.
The root cause of these differences lies in the varying interests of the member states: some depend on the Chinese market, some face pressure from competitive Chinese manufacturing, and others face higher energy costs due to the Russia-Ukraine conflict, making it challenging to reach a consensus.
4. Impact on China
- US Tariffs: The impact on China is limited, as there is a cap on the total amount of tariffs and the rationale has changed, so the overall economic effect is not significant.
- EU Measures: These measures are more institutional in nature:
- Market access becomes harder: To enter the EU market, companies must pay additional tariffs and comply with FSR regulations and localize their supply chains.
- Increased compliance costs: Companies will need to spend more on legal fees and adjust their supply chains.
- Long-term Friction: Once the rules are in place, they will be consistently enforced, unlike tariffs which can be negotiated and canceled.
In summary, while the US's actions are relatively minor, the EU's institutional restrictions pose a more serious challenge. For Chinese companies doing business in Europe, they must adapt to stricter regulations and learn to use legal means to protect themselves.
5. China's Response: "Targeted Countermeasures" + "Strengthening Strategic Positions"
- Differentiated Responses: China will target the key industries of individual EU member states (e.g., French brandy and Spanish pork) to demonstrate the costs of tighter policies.
- Strategic Mineral Resources: The EU relies on Chinese exports of rare earths, gallium, and germanium; China can use export controls as a countermeasure.
- Institutional Counteraction: China can declare the EU's FSR measures as "undue extraterritorial jurisdiction" and prevent domestic companies from cooperating with cross-border investigations, using legal means to protect itself.
In conclusion, while the EU's institutional frictions will persist, China has sufficient options for response. The key is to take targeted actions and use legal strategies to counter these restrictions.