US set to raise tariffs on Chinese electric vehicles next week

US President Joe Biden is set to announce new China tariffs next week, including an increase in levies on electric vehicle imports, according to media reports.

The levy on Chinese EVs is set to quadruple, the Wall Street Journal reported.

US trade officials are expected to raise the tariff rate to roughly 100 per cent, according to the report.

An additional 2.5 per cent duty applies to all vehicles imported into the US.

The decision is the culmination of a review of Section 301 tariffs first put into place in 2018 under former president Donald Trump on roughly $300 billion in goods from China.

Mr Biden is expected to target sectors including EVs, semiconductors, batteries and solar cells with new levies while rejecting the across-the-board rises sought by Mr Trump.

The decision is a continuation of Mr Biden's call last month to increase tariffs on Chinese steel and aluminium. However, China currently exports little of either metal to the US.

Chinese EV manufacturer BYD recently overtook Tesla as the world’s number one producer, while China has already overtaken the US in terms of global unit sales.

The US has two major concerns. It claims authorities in Beijing are covertly subsidising Chinese EVs, with the goal of eliminating competition.

US and European Union leaders said this strategy has fuelled a deluge of cheap exports.

The EU also launched an EV subsidy investigation in October that may lead to additional tariffs.

The second claim is that Chinese electric cars have cameras and other data-gathering devices that will boost espionage efforts. The US contends that information on critical infrastructure and military deployments will be transmitted in real time to the Chinese EV manufacturers from their cars roaming the streets.

Chinese EV manufacturer BYD recently overtook Tesla as the world’s number one producer. Reuters

China’s Foreign Ministry said the tariffs imposed by the previous US administration “seriously disrupted” economic and trade exchanges between the two countries.

It called on Washington to cancel the restrictions and added that China will take steps to defend its rights and interests.

“Instead of correcting its wrong practices, the United States continued to politicise economic and trade issues,” Lin Jian, a ministry spokesman, said at a regular briefing on Friday. “To further increase tariffs is to add insult to injury.”

The US is standing up to China’s “unfair economic practices and industrial overcapacity”, Mr Biden said last month.

“I’m not looking for a fight with China. I’m looking for competition, but fair competition.”

Republican candidate Mr Trump has promised 60 per cent or higher tariffs on all Chinese goods.

He has said that the US auto industry would face a “bloodbath” if he loses in November, and has pledged to impose stiff tariffs on Chinese-made vehicles that are imported into the US.

Meanwhile Tesla chief executive Elon Musk said during the company’s earnings call in January that if there are no trade barriers established, Chinese EV makers will “pretty much demolish most other car companies in the world”.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”