At the Fifth EU-China High-Level Environment and Climate Dialogue held in Brussels in June, Vice Premier Ding Xuexiang recognized the potential for collaboration between China and the EU on green transition. The Vice Premier said that the EU’s trade orientation towards China could be better aligned with its environmental and climate policies and stressed that the EU’s countervailing duty on Chinese electric vehicle companies is an act of trade protectionism that is counterproductive to the EU’s own transition and global climate cooperation.

Shortly after, on June 22 the first China-Germany High-Level Dialogue on Climate Change and Green Transition was held in Beijing. The two countries reached a series of important agreements on key issues such as subnational cooperation on green transition, industrial carbon reduction, energy efficiency and circular economy, and exchanged views on the EU’s imposition of countervailing duties on Chinese electric vehicles (EVs).

At Summer Davos, geopolitical tensions and new trends in trade policy were addressed in many sessions over the three days. The message was mixed, with both positive and negative assessments regarding the future of international trade disputes. Premier Li Qiang emphasized China’s commitment to addressing global climate issues and called for the removal of green trade barriers for the global future.

In an increasingly complex international environment, joint efforts to promote climate cooperation and dialogue are commendable. However, it is evident that with Western countries’ perception of China’s “overcapacity,” the numerous trade tensions and disputes, especially in cleantech industries like EVs and photovoltaics, remain a significant issue.

• Ripple Effects of U.S. Tariff Increases: Tariffs may reduce dependence on Chinese supply chains yet have adverse effects on America’s industrial development

On May 14, following a review of the results of the Trump-era Section 301 investigations, the Biden administration announced a significant increase in tariffs on major Chinese exports, including the “New Trio” (electric vehicles, photovoltaic products, and lithium batteries), with the tariffs on EVs rising from 25 percent to 100 percent.

On May 16, the U.S. initiated new anti-dumping and countervailing duty (AD/CVD) investigations into four Southeast Asian countries that are home to numerous PV factories invested by Chinese companies. This move appears to be an attempt to effectively exclude China’s clean energy products from the American market.

Many experts believe that the increased tariffs alone will have a limited impact on China’s industries. According to statistics released by the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, the volume of EVs and photovoltaic cells to the U.S. accounts for only 1% and 0.2%, respectively, of China’s total exports of these products in 2023. Therefore, the tariff hikes are unlikely to significantly affect overall export figures. Secretary-general of the China Industrial Association of Power Sources Wang Zeshen noted, “Due to low production costs, Chinese batteries will remain competitive even with the additional tariffs.” He added that the main markets for expanding domestic production capacity are Europe and Southeast Asia. In addition, it’s difficult for local industries in the U.S. and Europe to meet rising demand, so in general, the impact on China’s battery industry will be limited in the short term.

From a supply chain perspective, successive U.S. tariff increases may be aimed at reducing reliance on Chinese supply chains. However, this approach poses challenges for both Chinese and American companies and may increase the burden on American consumers. Yu Xiang, nonresident senior fellow at the Center for International Security and Strategy at Tsinghua University, commented, “As tariffs increase sourcing costs, American companies may reevaluate their supply chain strategies or even consider shifting some production to countries with lower tariffs. Such supply chain reorganization may result in companies in China and the U.S. facing higher adjustment costs in the short term. At the same time, tariff increases will directly increase the cost of the affected products, which may be passed on to American consumers, leading to higher prices and thus affecting demand in the U.S. domestic market.”

Taking the EV industry as an example, Sun Lei, senior partner at Beijing Dacheng Law Offices, stated that the higher tariffs would significantly impact American companies like Tesla, which have factories in China, affecting vehicle sales and increasing fixed costs. Regarding photovoltaics, BloombergNEF analyst Tan Youru pointed out that the reimposition of tariffs on Southeast Asian products would raise the prices of domestic photovoltaic modules in the U.S., thus harming American photovoltaic power station developers, increasing construction costs of U.S. photovoltaic projects, and slowing down the installation rate of photovoltaics.