Ted Shaffrey/AP Photo
A sign of the times at the New York International Auto Show, March 30, 2024
The Biden administration is announcing today that it will quadruple tariffs to 100 percent on electric vehicles exported from China. Officially, this and other targeted tariff increases (incorporating lithium-ion batteries and battery parts, semiconductors, solar cells, ship-to-shore cranes, certain steel and aluminum products, medical supplies like needles and personal protective equipment, and a handful of critical minerals) were determined after an investigation into China’s widespread use of forced technology transfer and theft of intellectual property. With respect to EVs, the U.S. wants to save a critical industry.
The industry has to cooperate in its own survival, of course. U.S. automakers have lobbied for protection from Chinese competition and relaxation of federal requirements to transition to EVs. They got both, but neither relieves the pressure to move toward cleaner engines. In the 1980s, the government created breathing room for the Big Three automakers to fight off competition with Japan; they spent the time engaging in joint ventures, becoming more efficient companies, and making better cars. With even more pressure from within now, that exact spirit must animate the industry, or the government won’t be able to stop them from failing.
Some observers don’t see the Chinese auto industry as a threat, but a major opportunity. Cheap EVs from China could bring electrification to a larger class of auto purchasers, and more rapidly transition the transportation sector, they say. It’s counterproductive to the Biden administration’s climate goals.
But if you’re the White House, and you’ve just committed hundreds of billions of taxpayer dollars to creating a homegrown electric-vehicle industry and an entire ecosystem of batteries and minerals around it, you might want to make sure that commitment doesn’t go completely to waste. The economic fallout of sacrificing an industry of the future would be lasting, as the experience of domestic solar manufacturing makes clear. And the political fallout of allowing a failure that is orders of magnitude beyond Solyndra in the heart of the Midwest’s blue wall would be catastrophic. If Joe Biden’s Democratic predecessor, to borrow Mitt Romney’s phrase, had “let Detroit go bankrupt” in 2009, he wouldn’t have won re-election. So too for the current president.
To say it plainly, Democrats losing the presidency for an extended period would be fatal to the green transition. The Republican nominee just asked Big Oil for $1 billion in campaign cash to repeal the clean-energy advances of the Inflation Reduction Act (IRA). Carbon emissions will almost certainly be higher under Donald Trump, if for no other reason than the oil industry will have a friendly proponent of keeping their product viable in power. Chinese cars are almost irrelevant to that fact, and Trump probably isn’t favorably disposed to them. In this sense, a planet with lower carbon emissions could be dependent on U.S. auto sector protectionism, as much as some might not want to admit it.
Moreover, the energy used to produce Chinese EVs is simply dirtier than in the U.S. The country consumes over half of the world’s coal. Leaving any significant manufacturing sector to China takes the important last mile of industrial decarbonization out of America’s hands. You can view the increased tariff in part as a carbon border adjustment tax. Beyond that, the havoc the U.S. saw after the pandemic when it couldn’t get any computer chips to produce vehicles would be far worse if the dependence extended to the whole car.
American auto companies are already benefiting from supply chain and manufacturing improvements that are supposed to be unique to Chinese dominance.
But part of this debate relies on a very rigid sense of the realities of the electric-vehicle sector. It is assumed that, now that China has very recently surged to the front, it is the undisputed winner of the race, and nothing can change that. This doesn’t appear to be true.
As Kyle Chan explains, American auto companies are already benefiting from supply chain and manufacturing improvements that are supposed to be unique to Chinese dominance. China is the number two exporter of auto parts into the U.S.; notably, auto parts were not on the tariff order, though U.S. firms must meet domestic content requirements to qualify for EV consumer rebates. Large casting machines, seen as the key to China producing more vehicles in a shorter time frame, aren’t made in China but Italy. It’s a technology that can be purchased; Tesla received the first one, and Ford and Hyundai are following suit.
Batteries are a big source of China’s current advantage. But Chinese firms like CATL and BYD, these companies are battery technology suppliers, not just producers. Ford’s proposed battery plant in Michigan uses CATL technology; GM is doing the same thing with a Korean battery company called SK On in its plant in Tennessee. Tesla, BMW, Mercedes, and Kia are all using Chinese battery technology in their U.S. plants.
This mirrors one outgrowth of the way policymakers leapt to challenge the Japanese revolution, in ways that were also initially deemed protectionist. Talks led to a voluntary quota system for imports, alongside pressure on Japanese automakers to move vehicle production to the U.S. Administration officials are more wary this time of welcoming Chinese juggernauts like BYD or Geely directly to open plants in the U.S. (The possible siting of a BYD factory inside the free-trade zone in Mexico will likely be frowned upon too, and countered with transshipment duties.) But there’s more comfort with partnerships and licensing technology, as long as it’s real licensing.
The greatest example of a U.S.-Japanese auto partnership was the NUMMI (New United Motor Manufacturing, Inc.) plant in Fremont, California, a joint production of General Motors and Toyota run on Japanese principles. In the 1980s, NUMMI became one of the most productive and high-quality auto plants in America. (The plant was closed in 2010 but almost immediately reopened by an electric-car maker called Tesla, which has been producing vehicles in Fremont ever since.) These Chinese-U.S. partnerships are an antecedent to that, supporting U.S. jobs and businesses.
Now, you may have heard that U.S. automakers are suspending their EV teams and moving away from the technology. This isn’t quite right either. There have been some delays, but all the targets out to 2035 are the same. And they have to be, because the Environmental Protection Agency’s clean-car rule is in place and demands serious emissions reductions. Detroit still sells the three leading models of vehicles in the U.S., but they’re all giant trucks. That cannot be the future by definition.
There’s this persistent myth that U.S. EVs lose massive amounts of money, which is a fiction based on how companies account for R&D spending. The fear is that the automakers have internalized this so much that they will just drop the transition, secure that the tariffs will protect their continued sale of gas-guzzlers. But that would be the end of Detroit; they’re not big enough anymore to have that level of security.
As I said in March, only accelerating the domestic ecosystem of lithium mines and battery plants and recycling centers needed to foster an EV sector will allow the auto industry to thrive here. That’s what will reduce the cost of assembly and spur innovation; we’re so early into the cycle of electric vehicles that there’s much more to come. Some company already with a foothold here is going to do it; if it’s not Ford and GM, it’ll be Hyundai or someone else, probably with union labor if the UAW has anything to say about it.
The U.S. and China aren’t nearly as far apart on EVs as even U.S. firms would like us to believe. But the EV charging disaster suggests that U.S. auto companies aren’t taking the transition seriously. They made a catastrophic mistake relying on the mercurial Elon Musk to build out a charging network, the plug of which can be pulled at a moment’s notice. Fortunately, Musk figured out his own folly, and is hiring back Supercharger staff and vowing to invest $500 million in more chargers. But that’s highly contingent, and U.S. firms can’t draft off Tesla for charging infrastructure anymore.
The total value of Chinese imports coming under tariffs is $18 billion, a fly speck in the overall scheme of global trade. This is largely about protecting an investment in the domestic auto industry. But those automakers have to walk through the open door.
