DRAGONS ON WHEELS
by William Paton 16 June 2024
Just when I thought my morning news feed couldn't get any sillier, the Biden administration raised tariffs on near-imaginary Chinese electric vehicle imports from 27.5% to 100%. Europe followed suit by also raising it's tariffs, angered that 8% of its electric vehicles are imported Chinese brands, at competitive prices. They studiously ignored that another 12% of its EVs are imported Western brands, made in China by Tesla and Germany's own BMW, while a healthy 80% are made in Europe. Europe's own automobile industry was largely against the move.
Meanwhile, three meetings discussed the war in Ukraine. The G7 pledged ten more years of weapons -- for a 'forever war'. Germany held a meeting that discussed starting reconstruction during the war, though some works will probably be re-bombed. Switzerland yodeled about hosting a 'peace conference' of 90 countries to discuss the fantasy of imposing an utterly one-sided peace in Ukraine, declining to even invite Russia. Can it get any nuttier?
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I have owned two cars in China. The first was a Japanese brand, imported from Dubai. The second was a German brand, made in Beijing. My elder brother's first car, in Canada in the 1970s, was a used Volkswagen imported from Germany, and his second was a brand new Datsun, imported from Japan in the 1980s. My first car, in London in the early 1990s, was a used SAAB from Sweden. Neither I nor my brother have ever owned a domestic brand car, and all but one was imported.
So what the heck is going on here? Two of the three places that have exported most of the world's cars for more than a century, Europe and the USA, have suddenly decided that selling cars in another country more cheaply is a violation of their rights and must be due to some unfair behaviour by the dreaded Chinese. The unpopular truth is that China long ago saw the future was green and electric, and so devised an industrial strategy to prepare for it. They invested consistently for two decades, building cost-effective supply chains and economies of scale for things like solar panels, windmills and EVs. Initially they subsidized purchases of EVs, just as Europe and the USA are doing now, but have gradually reduced those subsidies. Beijing also made sure new electric vehicle companies had access to financing for their risky ventures, as many such startups failed. It paid off though, and China is now producing the best value-for-money, highest-quality electric cars on the planet.
Four decades ago, China began allowing foreign companies to come to China and make vehicles, jointly with Chinese companies, beginning with the famous Beijing Jeep in 1984. By this century almost every brand of car in the world was being manufactured in China for the domestic market. For over two decades, most cars in China were foreign brands, either imported or manufactured in-country. China became the largest car market in the world, huge for companies such as Toyota, Mercedes-Benz or General Motors, who made equally huge profits there. A few years ago, Tesla built an enormous 'giga-factory' in Shanghai which they wholly own, and is selling cars both in China and abroad.
Only in 2022, did China's own domestic brands achieve 51% of their own market. Much of this was not due to imitation of legacy technology and old-fashioned combustion engines, but rather the explosive growth of EVs. With their electric motors, regenerative braking, lithium batteries and tablet-based controls, electric vehicles are a new, homegrown technology that China is now ready to export. This is only fair but the USA and Europe cry foul. China, they maintain, has only achieved this due to some evil plot by its dreaded Communist Party, who have figured out how to get rich by selling cars at a loss. Concern about climate change is absent from this agenda, though blocking less expensive, better quality electric cars will delay the switch to green energy.
The Biden administration's stance is particularly absurd. EV sales were about 800,000 in 2022 or 6% of US vehicle sales. Tesla dominated with 65%, followed by Ford and then Hyundai and Kia. China exports only a small number of EVs to the USA, worth only 389 million dollars in 2023 or just 2% of imports of EVs into the USA.(1) This was despite a special 25% tariff on Chinese EVs, for a total of 27.5%, before it was raised to 100%. Incredibly, the truth is that most of the Chinese-manufactured cars imported into the USA are Buicks and Lincoln's! American tariffs on these cars will remain at 2.5%. General Motors alone sold 2.1 million cars in China in 2023, mostly made in China. Ask an American friend if they have ever even seen a Chinese car.
Overall, China's global exports of cars may or may not have overtaken Japan's in 2023, depending on whose figures you choose, but both exported more than 5 million vehicles. China's domestic sales in 2023 were 21 million vehicles compared to Japan's 4.8 million. No other major automobile manufacturing nation sells as small a proportion of their production abroad as China does. So why, exactly, does the West call this 'overproduction.'
Chinese EVs are cheaper and very good quality, with attractive new designs, and so will of course increase sales in future as the rest of the world finally goes electric. China did increase its total car production in 2023 by 12% compared to 2022 so they're on a roll for sure. But does that make a 100% tariff fair? Won't it only lead to more bailouts of a coddled, noncompetitive Detroit car industry just as Japanese competition did, long ago? China will meanwhile sell EVs on a greater and greater scale to the rest of the world, gaining even greater economies of scale. The new USA 100% tariffs are not an industrial strategy. They are an election strategy. Like Europe's, they will actually damage the American automobile industry by overprotecting it from healthy competition.
Just when geopolitics seemed as bad as it could get, the disconnect between intelligent policy and what voters like to hear is getting even worse. Policies now no longer have to make sense at all, or even contribute to the alleged goal. In fact it's simpler if they don't, as politicians can then explain them with utterly fantastic reasoning. Europe can pass a policy to protect it's auto industry, against the wishes of who? Of it's own auto industry! Who rightly fear retaliation against their lucrative Chinese businesses. And the USA can slap a 100% tariff on nearly non-existent electric car imports from China. We have entered a Western Wonderland -- but one sadly lacking the delightful Alice.
The G7 can pledge to support Ukraine fighting for another decade, until the whole country has been reduced to a depopulated rubble, and receive loud, imaginary applause at home. I say imaginary because most Europeans polled said they prefer a real diplomatic solution between Russia and Ukraine rather than continuing the war. The war is in Europe, remember, but the USA wants this guarantee that it will be as long as possible. In Wonderland, many things are very strange.
Now Switzerland, too, has shamed itself. Once an iconic symbol of neutrality and conservative common sense, Bern just hosted an utterly one-sided 'peace conference' -- an event with zero hope of bringing peace. It would have been better named a 'war conference'. Russia responded to their non-invitation that they would not have come anyway to such a peace conference, where the agenda was entirely Ukraine's.
Germany's contribution was to hold discussions in that country on rebuilding Ukraine while it is still being destroyed. No doubt the World Bank will set up an enormous, glacially slow fund that will disembowel Kiev's sovereignty by raising the specter of Ukrainian corruption. Hiding behind this Boogeyman, it will proceed to 'transparently' award donor countries' own companies most of the contracts. Before the war, the USA bought just 2% of Ukraine's exports, making it a smaller trade partner of Ukraine's than Egypt. Somehow, it will still win most of the 'competitive' bids for contracts, worth hundreds of billions of dollars, to re-build infrastructure that is still being bombed, and in a war where Ukraine uses mostly US weapons to fight back. This will be the largest post-war reconstruction since WWII, less like Wonderland I'm afraid and more like something out of Joseph Heller's imagination.
This is the year of many elections around the world. Combined with the continuing erosion of interest in truth, basic logic or just common sense, the polls are prodding politicians to invent some of the most absurd, nonsensical policies we have seen in my lifetime. No doubt, there will be more cause to giggle, or moan, coming very soon. It will not make the world a better place. Just a sillier place.
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1) U.S. International Trade Commission (April 2024), Chinese Vehicle Exports: Electrified, David Coffin and Jeff Walling, Office of Industry and Competitiveness Analysis, https://www.usitc.gov/publications/332/executive_briefings/ebot_china_ev_exports.pdf
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