Flush With Investment, New U.S. Factories Face a Familiar Challenge

The Biden administration has begun pumping more than $2 trillion into U.S. factories and infrastructure, investing huge sums to try to strengthen American industry and fight climate change.

But the effort is facing a familiar threat: a surge of low-priced products from China. That is drawing the attention of President Biden and his aides, who are considering new protectionist measures to make sure American industry can compete against Beijing.

As U.S. factories spin up to produce electric vehicles, semiconductors and solar panels, China is flooding the market with similar goods, often at significantly lower prices than American competitors. A similar influx is also hitting the European market.

American executives and officials argue that China’s actions violate global trade rules. The concerns are spurring new calls in America and Europe for higher tariffs on Chinese imports, potentially escalating what is already a contentious economic relationship between China and the West.

The Chinese imports mirror a surge that undercut the Obama administration’s efforts to seed domestic solar manufacturing after the 2008 financial crisis and drove some American start-ups out of business. The administration retaliated with tariffs on solar equipment from China, sparking a dispute at the World Trade Organization.

Some Biden officials are concerned that Chinese products could once again threaten the survival of U.S. factories at a moment when the government is spending huge sums to jump-start domestic manufacturing. Administration officials appear likely to raise tariffs on electric vehicles and other strategic goods from China, as part of a review of the levies former President Donald J. Trump imposed on China four years ago, according to people familiar with the matter. That review, which has been underway since Mr. Biden took office, could finally conclude in the next few months.

Congress is also agitating for more protections. In a Jan. 5 letter to the Biden administration, bipartisan members of a House committee expressed concerns about China flooding the United States with semiconductors. Lawmakers asked whether the government could establish a new “component” tariff that would tax a chip imported inside another finished product.

That followed a November letter in which members of the same committee advised the Biden administration to consider a new trade case over China’s electric vehicle subsidies, which could result in additional tariffs on cars.

Katherine Tai, the U.S. trade representative, told the lawmakers that she shared concerns about China’s practices in the electric vehicle industry, according to a Jan. 4 letter that was shared with The New York Times. Ms. Tai told the committee that the administration needs “to work with U.S. companies and unions to identify and deploy additional responses to help overcome China’s state-directed industrial targeting in this sector.”

The United States has maintained tariffs on hundreds of billions of dollars of Chinese products over the past five years, viewing that as a way to offset Beijing’s ability to undercut American manufacturers by selling cheaper products into the United States. Mr. Biden has tried to further help American companies with billions in subsidies intended to boost U.S. manufacturing of clean energy technology like solar panels, electric vehicles along with semiconductors.

Yet Chinese industrial policy spending still far outstrips that of the United States. Facing an economic slowdown and a gradual bursting of the property bubble, the Chinese government has recently redoubled efforts to promote exports and support its factory sector.

Beijing is particularly focused on investment in high-tech products with strategic importance, like electric vehicles and semiconductors, said Ilaria Mazzocco, a senior fellow in Chinese business and economics at the Center for Strategic and International Studies, a Washington think tank.

“Those are also the kinds of industry the rest of the world wants as well,” she said.

Some of China’s success stems from its larger market — which gives Chinese firms the scale and opportunity to hone their products — along with its vast pool of talented engineers. China sold about 6.7 million all-electric vehicles last year, for example, compared to around 1.2 million units in the United States.

The Chinese government has said that it competes fairly and described U.S. trade measures as protectionist.

But Wendy Cutler, the vice president at the Asia Society Policy Institute and a former trade negotiator, said China’s clean energy and semiconductor industries had received a lot of state assistance, in the form of tax credits, access to cheaper energy and equity infusions.

“The list goes on and on,” she said. “As Chinese companies avail themselves of these type of systems, it just leads to overcapacity.”

In the United States, when the supply of solar panels exceeds demand, factories idle their lines, lay off workers and try to bring capacity back into alignment, said Michael Carr, the executive director of the Solar Energy Manufacturers for America Coalition, which represents U.S.-based solar manufacturers.

“That’s not the way it works in China,” he said. “They’ve just continued to build and build and build.”

China invested more than $130 billion in the solar sector last year, and is positioned to bring enough wafer, cell and panel capacity online this year to meet annual global demand through 2032, according to analysts at Wood Mackenzie, an energy research firm.

Late last month, two U.S. firms mounted a legal challenge to a temporary moratorium that the Biden administration had placed on tariffs on imported solar panels.

China’s hefty investments into semiconductors, including a new $40 billion fund to support the industry, are also worrying companies investing in new U.S. chip facilities.

China accounts for a relatively small share of global chip production — only about 7 percent in 2022. But experts say that the country is spending more on its semiconductor industry than the United States and Europe combined, and that it could become the world’s largest maker of chips in the next decade.

Dan Hutcheson, the vice chair of research firm TechInsights, said that the fear was that China would do for semiconductors what it did for shipping, solar cells or steel — build up excess capacity and then drive foreign competitors out of business.

“It’s a legitimate fear, because the weakness of Western companies is they have to be profitable,” he said.

The United States can — and does — impose tariffs on Chinese exports that are unfairly subsidized or sold in the American market for less than it cost to make them. Earlier this month, it slapped tariffs of more than 120 percent on Chinese steel.

But even when Chinese goods are blocked from the United States, they can flow into other countries. That pushes prices down globally to levels with which U.S. firms say they cannot compete, and crowds American firms out of foreign markets, cutting into their revenue and competitiveness.

Some say the United States should simply embrace cheap Chinese-made solar panels and legacy chips, instead of imposing tariffs that raise costs for American consumers and factories that use imported inputs.

Scott Lincicome, a trade expert at the libertarian Cato Institute, said that it did not make economic sense for the United States to try to outspend China, especially for goods that are not military related.

“Is the proper response, we do our own subsidies? Or is to be a better economist and say, ‘Actually, we’ll let foreign governments subsidize our consumption like crazy, we don’t really care?’” Mr. Lincicome said.

But most officials in Washington now see China’s dominance of key markets as a significant risk, given growing tensions between the countries and China’s imposition of certain export bans. China produces around 80 percent of the world’s solar panels, nearly 60 percent of electric vehicles and more than 80 percent of electric vehicle batteries.

The average price for an electric vehicle in China is around $28,000, compared to about $47,500 in the United States, according to Dunne Insights, an electric vehicle market research firm. In the fourth quarter last year, Chinese automaker BYD delivered more electric vehicles than Tesla, surpassing the U.S. firm for the first time.

Chinese electric vehicles have surged in popularity in Europe, prompting the European Union to begin an investigation into illegal subsidies. So far, Chinese electric vehicles have yet to gain a foothold in the United States, which imposes hefty tariffs on those imports.

As part of the climate law that Mr. Biden signed in 2022, buyers of electric vehicles that are primarily sourced and assembled in the United States, rather than China, will also receive lucrative tax credits. Still, some officials worry that Chinese vehicles are in general so much cheaper than American alternatives that consumers could choose to buy them anyway.

Keith Bradsher contributed reporting from Shanghai.