Biden To Raise Tariffs On Chinese Semiconductors, Lithium-Ion Batteries

A distribution executive weighs in on the potential impacts of President Joe Biden’s upcoming tariff increases for Chinese semiconductors and lithium-ion batteries on channel partners: ‘There could be enough of those things inside of something to raise the price enough to be painful.’

President Joe Biden’s administration announced on Tuesday that he will raise tariffs on Chinese imports such as semiconductors and lithium-ion batteries starting this year.

The White House said the tariff rate increases target $18 billion of imports from China across the following categories: semiconductors, lithium-ion batteries, electric vehicles, steel and aluminum, solar cells, medical products and ship-to-shore cranes produced in China.

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The tariff increases are substantial, with import duties on China-made semiconductors set to double from 25 percent to 50 percent next year and rates on lithium-ion batteries for non-electric vehicle products to more than triple from 7.5 percent to 25 percent in 2026.

Biden is also increasing tariffs on battery parts from 7.5 percent to 25 percent this year, on natural graphite and permanent magnets used in batteries from zero to 25 percent in 2026 and on certain other critical minerals from zero to 25 percent this year.

Kent Tibbils, vice president of marketing at Fremont, Calif.-based IT distributor ASI, told CRN that he expects the increased tariffs for Chinese semiconductors and lithium-ion batteries to vary in impact for channel partners.

The tariffs on semiconductors, for instance, will mainly impact legacy chips, for which China has developed a large manufacturing base through economic policies, according to the White House. It said these activities have allowed Chinese legacy manufacturers to grow market share and rapidly expand capacity to the potential detriment of “market-based firms.”

By raising tariffs on legacy chips, the administration said it’s making an “important initial step to promote the sustainability” of investments the U.S. government has made in expanding semiconductor manufacturing and research, mainly through the U.S. CHIPS and Science Act.

Tibbils said the legacy chips targeted by the White House are not high-value products like CPUs and GPUs that go into computers. Rather, these are chips that are “relatively inexpensive” and go into a wide range of products, including monitors and power supplies, he added. The White House said these chips also go into automobiles, consumer appliances and medical devices.

As a result, according to Tibbils, the increased tariffs could result in “slight increases in costs” for products relying on legacy chips from Chinese manufacturers. The effects could magnify, however, for products like computer or server motherboards that use several legacy chips.

“There could be enough of those things inside of something to raise the price enough to be painful,” he said.

With the increased tariffs on lithium-ion batteries, Tibbils sees a potentially larger impact on smartphones and laptops that rely on such components.

“In a notebook, that’s a pretty expensive piece of it,” he said.

The impact of tariff increases for legacy chips and lithium-ion batteries could be dampened, however, if manufacturers of such products manage to switch to suppliers outside of China in time to avoid the impact of higher duty taxes, according to Tibbils. But the executive added that not all manufacturers have the wherewithal to shake up their supply chains in a timely manner.

“They couldn’t do that on all products. It’s just not possible. Not everybody has that kind of factory structure,” Tibbils said.

If price increases are anticipated for certain products, channel partners may order more than they need ahead of when the tariff hikes happen to avoid higher costs, according to Tibbils.

“What we have seen in the past are some spikes in purchases,” he said.

Channel partners, on the other hand, may postpone purchases if they believe manufacturers can switch suppliers, that the tariff situation may change or that another component will decrease in price to offset any duty tax rate hikes in the near future, Tibbils added.

The distribution executive said he expects a bigger impact on channel partners who are locked into contracts or bids with government customers “because they're locked into their pricing that they probably already have quoted and can't change or adjust those.”

“They may have the ability to adjust their pricing by certain percentages depending on what details are outlined within the contract, but they may have to eat [the increased costs],” he said.