Washington DC panorama, by Songquan Deng at Shuttlestock
On 14th May 2024 the Office of the US Trade Representative announced a plan to introduce or increase duties on a range of Chinese imports as it looks to onshore or friend-shore its supply chain. The sweeping tariff hikes to between 25 and 100 percent cover a range of critical metals alongside aluminium and steel, semiconductors, solar panels and electric cars . In this article, Argus Media examines the market’s reaction, and the potential implications of these new US tariffs.
Market participants across the metals industry are trying to gauge the impact of a fresh raft of US import tariffs on Chinese goods, announced in mid-May, but a lack of clarity around their scope and implementation means that for now there are perhaps more questions than answers.
Washington unveiled the new measures on 14 May, targeting $18bn worth of imports from China related to clean energy technologies, aluminium and steel. It marks the first broad trade action the US has taken against China since 2019 and the first since President Joe Biden took office.
The tariffs on electric vehicles (EVs) will rise to 100pc from 25pc in 2024. The tariffs on solar panels and components will double to 50pc this year. The tariff on lithium-ion EV batteries will immediately increase to 25pc, while the tariff on all other lithium-ion batteries is set to increase to 25pc in 2026, both from the current rate of 7.5pc.
The tariff rate on natural graphite and permanent magnets will increase from zero to 25pc in 2026. The tariff rate for “certain other critical minerals” (see table) will increase from zero to 25pc in 2024.
At the time of writing no date has yet been confirmed for when they will come into effect. However the US Trade Representative is proposing that the “increases in 2024 be effective August 1, 2024, and that increases in 2025 and 2026 be effective January 1 of the corresponding year”.
As yet, there is not much clarity about exactly how the tariffs will be implemented and it is not known how the concept of origin will be interpreted and whether products will only face a tariff if shipped directly from China.
With this level of detail still unknown, the impact on metal prices has so far been negligible.
Depending on the details, the tariffs might profoundly impact trade and production of some of the products involved over the coming years.
Lithium-ion batteries
For China, any barriers to the US market stand to impede their second largest destination for lithium-ion battery exports – the US accounted for 21pc of China’s exports in 2023, ranking second after the EU, according to trade data.
From a US perspective, the impact stands to be more significant, with China accounting for just over 56pc of US imports of lithium-ion batteries in 2023, according to US customs data.
The new tariff hikes are likely to benefit Japanese and South Korean battery manufacturers, and indeed North America’s own burgeoning battery industry, although much will depend on how the tax is applied.
“If they only levy the tax on products directly shipped from China, more and more Chinese battery companies are likely to increase their overseas investments to avoid the tax,” one battery manufacturer said.
Chinese companies have already in recent years been ramping up investment in overseas battery projects, diversifying their global footprint and easing access to new markets. CATL, the world’s largest battery maker, will operate two of Europe’s largest gigafactories by the end of the decade in Hungary and Germany.
In total, Chinese investments are expected to produce over 214GWh of batteries in Europe by 2025, more than three times Europe’s total 2022 battery capacity, according to the China Project, a US-based China-focused think-tank. Chinese battery firms are also building plants in Thailand, South Korea and Indonesia.
“Certain other critical minerals” subject to a tariff hike from 0% to 25% in 2024
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Actinium, californium, curium, einsteinium, gadolinium, polonium, radium, uranium & their compounds, alloys, dispersions, ceramic products & mixtures |
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Aluminium ores and concentrates |
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Chromium ores and concentrates |
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Chromium, unwrought; chromium powders |
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Cobalt ores and concentrates |
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Ferronickel |
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Ferroniobium containing by weight less than 0.02 percent of phosphorus or sulfur or less than 0.4 percent of silicon |
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Ferroniobium, nesoi |
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Indium, unwrought; indium powders |
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Manganese ores and concentrates including ferruginous manganese ores & concentrates with manganese content over 20% calculated on dry weight |
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Other radioactive elements, isotopes, compounds, nesoi; alloys, dispersions, ceramic products and mixtures thereof |
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Radioactive residues |
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Tantalum, unwrought (including bars and rods obtained simply by sintering); tantalum powders |
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Tin (o/than alloy), unwrought |
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Tin alloy, unwrought |
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Tritium and its compounds, alloys, dispersions, ceramic products and mixtures thereof |
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Tungstates (wolframates) |
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Tungsten carbide |
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Tungsten concentrates |
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Tungsten oxides |
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Tungsten, powders |
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Zinc (o/than alloy), unwrought, casting-grade zinc, containing at least 97.5% but less than 99.99% by weight of zinc |
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Zinc (o/than alloy), unwrought, containing o/99.99% by weight of zinc |
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Zinc (o/than alloy), unwrought, o/than casting-grade zinc, containing at least 97.5% but less than 99.99% by wt. of zinc |
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Zinc alloy, unwrought |
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Zinc ores and concentrates |
Source: Office of the US Trade Representative
Graphite
The import tariff on natural graphite is likely to accelerate ongoing efforts to diversify the supply chain outside China. For Chinese exporters, the US is arguably a marginal market, accounting for less than 3pc of last year’s exports of natural graphite, according to customs data.
But for US graphite consumers – many of whom are buying it for industrial applications rather than battery anodes – China is a pivotal supplier, accounting for almost 40pc of last year’s flake imports.
The US could source more natural graphite from Africa and Brazil over the coming years, and there are several projects around the world striving to build out synthetic graphite production which could also fill some supply gaps. But any major shifts would take time, as signalled in early May by the Biden administration’s announcement that US battery makers will be allowed a two-year transition period to keep sourcing graphite from China despite rules under the Inflation Reduction Act that aim to reduce reliance on the country.
Permanent magnets
In theory, the tariff on imports of permanent magnets could dampen some Chinese exports to the US and encourage existing efforts to diversify rare earth magnet supply chains around the world – both in the US and elsewhere. Any hit to China’s magnet exports could dampen Chinese rare earth consumption, compounding the current oversupply within China’s rare earths market.
Last year, China’s exports of permanent magnets (under HS code 85051110) to the US rose by 15.3pc to 7,341t, making it the second largest destination after Germany with 8,818t, customs data show. The US accounted for 14pc of China’s total exports of 52,689t during the period.
However the reality is likely to be more nuanced – largely because the US does not currently have enough alternative sources of supply. Even with ideal regulatory and funding conditions – not to mention technological expertise and equipment – it would take many years for the US to develop enough permanent magnet manufacturing capacity to replace Chinese material, plus enough of the necessary rare earth materials as feedstock.
Some companies are of course already working to build new western magnet manufacturing capacity, and Japan could help fill some supply gaps – albeit it depends how those manufacturers assess the situation and priorities. In the meantime, it is possible that US magnet consumers may simply end up paying more for these vital products.
Indium
The tariff on indium is coming at a time of increased US reliance on China for the metal. The US imported 16t from China in the first quarter of 2024, up from 3t a year earlier after alternative Asian suppliers lifted their prices in line with China or stopped offering in the spot market.
Overall, the past few years has seen a growing amount of indium trade revolving around China rather than Japan or South Korea, influenced by the growing requirements of China’s expanding semiconductor manufacturing sector.
While in the long-term the tariff hike may encourage the development of new US indium supply streams including recycling, in the near-term US buyers of indium – or indium-containing products who might find the costs passed downstream – may find the new tariff hike challenging, coming on top of an extraordinary jump in Chinese indium prices.
Domestic Chinese indium prices rose by almost 48pc between 15 April-16 May, largely in response to activity on the Changzhou Zhonglianjin platform, which has rapidly pushed up indium prices outside China as well.
Chromium
The past two years have seen Chinese chromium products play a growing role in western markets, as many consumers have pulled away from Russian metal despite its availability at a steep discount to other origins. China has been exporting around 500t/month to the US since July 2023, compared with 200t total in the whole of January-June 2023, according to trade data.
Deliveries from China accounted for 73pc of US chromium imports in January-February this year, up from a 52pc share in 2023 and 35pc in 2022, trade data show.
US buyers are unlikely to revert back to Russian metal given geopolitical dynamics, and therefore may end up shouldering the higher costs brought on by the new tariff. “There is not too much room for Chinese exporters to cut prices to make up for the tariff, so US buyers may have to swallow the higher cost themselves,” a market participant said.
By Argus Non-Ferrous Markets
ellie.saklatvala@argusmedia.com
