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U.S. casts a wary eye on surging Chinese EV industry
The electric vehicle market is just one example of how tensions between the U.S. and China are putting up barriers to a broader clean energy transition.
CLIMATEWIRE | The Biden administration is concerned that China’s ascent in the electric vehicle market could pose a future threat to the U.S. auto industry and is considering ways to stave off any challenge, a trade official said Thursday.
China is currently the top producer of EVs and components, exporting them to emerging markets, but it's also taking up a growing market share in Europe.
So far, it hasn’t penetrated the U.S. market, in part because of high tariffs. Chinese producers also can’t take advantage of consumer tax breaks under the new climate law, creating a major disincentive. But state support for the EV industry in China is top of mind for U.S. officials.
“We're concerned. This is a sector in the United States that has a long history of autos and auto parts, of jobs, of good-paying jobs, often union jobs,” Brian Janovitz, chief counsel for China trade enforcement at the Office of the U.S. Trade Representative, said during a panel discussion hosted by the nonprofit Washington International Trade Association.
“And in this case, there is a potential looming threat because China has achieved its position … through its industrial targeting of the sector," he added.
In addition to strong state subsidies, Janovitz referred to the large number of state-owned companies, opaque regulations, lax environmental laws and discriminatory practices that have allowed China to build up its market dominance.
“When you put all of these things together, it's a very formidable challenge,” he said.
The EV market is just one example of how tensions between the United States and China are putting up barriers to the broader clean energy transition. Lawmakers have also debated restrictions to imports of solar panels and U.S.-China business partnerships. A tie-up between Ford Motor Co. and China-based Contemporary Amperex Technology Co. Ltd., the world’s largest producer of EV batteries, has come under close scrutiny from Republican lawmakers.
Janovitz wouldn’t comment on specific companies or situations but said the administration is very concerned about being in a position of overdependence.
“We simply cannot rely on China both for EVs as well as the upstream for battery technology or critical minerals,” he said. “These are the critical technologies and products for meeting our Paris Agreement goals. They're incredibly important to the transition to [a] clean energy economy.”
A 'certain level' of defense
Janovitz said the 27.5 percent tariff on Chinese EV imports distinguishes the U.S. from the European market, where tariffs are only around 10 percent.
“There is a certain level of defense there, but we will obviously continue to assess the challenges,” he said.
Janovitz’s trade office is reviewing the tariffs that the Trump administration imposed on Chinese imports, including EVs. In 2018, then-President Donald Trump cited Section 301 of the Trade Act — which allows the labeling of foreign trade practices as unjustifiable or unreasonable — to put a restriction on Chinese imports.
The Biden administration put the high tariffs in place while it reviews the actions from the Trump years. Janovitz wouldn’t comment on any potential outcomes of the review but said it could be finalized in the coming months.
The United States has a few tools at its disposal to counter the advantages of Chinese automakers and to help domestic producers become more competitive, said Jeffrey Kessler, an international trade lawyer and a former assistant secretary for enforcement and compliance at the Department of Commerce.
Section 301 gives the administration “a very flexible tool” in limiting Chinese EV imports, Kessler said. The U.S. government could also cite national security concerns as a rationale to restrict some Chinese automakers from accessing the U.S. market.
At the same time, the United States should work with its allies to create “a shared market” and “adopt common tools” to counteract China more effectively, he said.
“In a way, the U.S. already has in place the instruments to disincentivize the import of EVs,” said Ilaria Mazzocco, who works on China at the Center for Strategic and International Studies and was not part of the panel.
She thinks U.S. concerns about Chinese EV imports are mostly hypothetical at the moment. But Washington might be watching what trends in Europe could mean for the United States in the long term.
“If it gets to a point where it's so much cheaper to make an electric vehicle in China that even if there's a tariff or they don't qualify for credits, they're still competitive, that's where you're actually gonna get a real problem,” she said.
Explosive growth
The growth in exports of Chinese-made vehicles has been explosive in recent years. As recently as 2020, China exported less than 1 million cars, said Michael Dunne, CEO of ZoZoGo, a consulting firm specializing in global EV markets. This year it could be up to 4 million. EVs will account for around 30 percent of those exports.
That’s because domestic demand has been largely saturated so there is pressure on factories to push those products out to new markets, Dunne said.
Most exports of Chinese vehicles are going to developing markets in Southeast Asia, the Middle East, Africa and Latin America. Chinese carmakers, such as BYD Co. Ltd. and Great Wall Motor Co. Ltd., are also investing in manufacturing facilities in places such as Thailand and Mexico, in part to circumvent restrictions that the United States has imposed on Chinese imports, posing another set of challenges to U.S. regulators.
“We are seeing record investments in many markets across the world by Chinese automakers with the option not only to supply that one market where they're manufacturing but to use it as a hub for reexport to markets like the United States,” said Dunne.
Janovitz said part of what the United States would try to assess in that situation is whether those investments are part of normal commercial activity or contribute to a continued dependence on China in global supply chains.
