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Tariffs won’t stop China’s electric vehicle dominance

Xi Jinping pulls the pug on European EV manufacturing. Credit: Getty

May 12, 2024 - 2:30pm

One of the most useful distinctions in economic policy is between purpose-driven and profit-driven motives. While it is hard to deny that, under the right conditions, the profit motive can lead to preferred outcomes for consumers, it is equally hard to deny that consumer satisfaction is not the only goal of economic policy. No one knows this better than the Chinese, who have been pursuing a purpose-driven economic strategy for decades. Only now, though, is the West waking up to it.

On Tuesday, Joe Biden’s administration is expected to announce quadrupled tariffs on Chinese electric vehicle (EV) imports. Xi Jinping has for some years been throwing the full weight of Beijing’s political and economic apparatus behind the quest to dominate global EV production. From the rare earth metals needed for battery production to the cars’ design, China is on course to have a chokehold on all the crucial parts of supply chains, which will provide geopolitical leverage for potential conflicts in the future.

Thanks to Beijing’s dominance in rare minerals crucial to the energy transition, over 90% of solar panels in Europe are now imported from China. This was not the consequence of free-market forces but, rather, deliberate policies aimed at establishing China as the main supplier of “clean” energy technology, using “dirty” coal, government subsidies and — more likely than not —forced labour.

Tesla founder Elon Musk made a surprise visit to China at the end of last month, having realised that competition from the Far East will only become more pronounced in the coming years. Yet this, along with Biden’s tariff hike, is indicative of a broader desperation in the West, the consequence of ignoring Chinese industrial strategy while introducing idiotic laws such as banning internal combustion engines, which will turn out to be the world’s greatest subsidies programme for cars made in China.

The European Union is also considering stepping up tariffs, but with so much of its industry depending on Chinese export markets, car manufacturers oppose the move. Historians will marvel at the degree to which both the United States and Europe have exposed themselves to a ruthless industrial policy by the Chinese Communist Party, all while claiming this will be to the benefit of everyone involved. As dependency on Russian energy has demonstrated, handing all leverage to your opponents will come at a cost once relations go sour.

The combination of suicidal environmental policies and seeking easy profits has now created significant disadvantages for Western economies, and a few tariffs will not resolve this issue. What’s more, this will not end with solar panels and EVs, but will instead move seamlessly onto the next stage: the production of high-end semiconductors. If the past has shown anything, underestimating China is a failing policy, and Western leaders should avoid making the same mistake over and over again.

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Jim Veenbaas
Jim Veenbaas
8 days ago

The EV market is already starting to implode. The vast majority of people don’t want them. People don’t understand that Tesla profits are driven by carbon credits that traditional manufacturers must purchase to offset their production of ICE vehicles. Those credits will generate nearly $2 billion in revenue for Tesla this year. It was only about five years ago that Tesla actually started generating profits from the actual sale of EVs.

Richard Calhoun
Richard Calhoun
7 days ago

The way to beat China’s EV dominance is to allow the free market to operate, ie. no tariffs.
End the ‘stupid’ net zero targets and subsidies and allow free and fair competition between all fuel types of vehicle.
Then you will see the implosion of the EV market and the new Chinese EV auto industry.

Arthur G
Arthur G
7 days ago

Why would you ever want free trade with a country that steals our intellectual property, has zero environmental or health and safety protections, uses slave labor, and overtly subsidizes their industries in order to destroy ours?
ZERO trade with China is a more rational position than free trade. Trade is not “free” at all when your counterpart follows none of the rules of civilized nations.

Jim Veenbaas
Jim Veenbaas
7 days ago

The free market will shift away from EVs much faster than China. There will be a lot of stranded assets in China.

Dougie Undersub
Dougie Undersub
7 days ago
Reply to  Jim Veenbaas
Nathan Sapio
Nathan Sapio
7 days ago

Imagine how effective of a counter that would be to China’s stated goals of world dominance, unwanted EV inventory filling the lots of over-invested party-controlled manufacturers.

leonard o'reilly
leonard o'reilly
7 days ago

Mr. Schoellhammer’s point is not an original one but is well put and worth repeating. The suicide of the West takes many forms. It’s very odd.

Hugh Bryant
Hugh Bryant
7 days ago

It’s amazing how many in our political establishment still believe that we can turn enemies into friends by opening the door to them and demanding nothing in return. ‘Speak softly and carry a big stick’ has morphed into ‘beg, cajole and grovel’.

El Uro
El Uro
7 days ago

I can’t understand one thing in all this crazy idiocy – where will the required amount of electricity come from and how much CO2 will be generated during its production?
Why do these bastards consider me, a physicist by training, a complete idiot?

Jim Veenbaas
Jim Veenbaas
7 days ago
Reply to  El Uro

Net zero advocates are not so good at connecting the dots

Nathan Sapio
Nathan Sapio
7 days ago

How to defeat Chinese the soft aggression aimed at overturning the West? Now that they are so heavily invested into EV production, and now that we know how problematic and limited in application they are, stop being interested in EVs and leave China hat in hand flush with bad product and no buyers

j watson
j watson
7 days ago

Which way is the dependency the question the Author fails to fully explore. China is v dependent on international trade. The West is more than capable of responding effectively but also recognises it needs to do it sensitively and incrementally. We have awoken.
Of course the mutual dependency means Xi is also now trapped by his Taiwan rhetoric. He closes the S China sea and virtually all international trade with China implodes. Thus who is exerting the greater power?

Graham Stull
Graham Stull
7 days ago
Reply to  j watson

Perhaps so. But Xi is also aware of this. He has also been regearing the Chinese economy towards domestic demand and a diversification of export markets – more trade with the BRICS and the Global South.

j watson
j watson
7 days ago
Reply to  Graham Stull

Yes but the BRICs are also waking up to the strings that come attached.

Martin M
Martin M
7 days ago

Surely the answer to all this is to give up on the headlong rush to EVs, and just keep driving ICE cars.

Chris Vautier
Chris Vautier
7 days ago

The whole drive (pardon the pun) towards Net Zero is idiotic and can only end in significant pain for the Western economies that are blindly pursuing it.
This should not be confused with a desire for cleaner, cheaper and more accessible energy, which makes sound sense…but saving the planet??
The clearer and more obvious this becomes, the less aware our fearless leaders appear to be. History will not judge Western Net Zero policies kindly.

Nanumaga
Nanumaga
6 days ago

I remain puzzled about the contention that Chinese EVs are carbon neutral, given the principal sources of energy required for their manufacture and shipping to markets in the US and Europe. China’s manufacturing industries depend almost entirely on coal-fired power stations, and the number of these increases every week. Exports of coal to China from Russia and Australia always offer a useful indicator.
Premised on some of the formulae promoted by the Green lobbyists, my 13 years old diesel SUV has produced, in total, far fewer CO2s per mile, including its manufacture and shipping, over 90,000 miles, than any five year old EV.
I’m using five year old EVs because their frequent requirement for a new battery after five years shifts the data on actual sustainability in CO2 terms considerably – and £5,000 to £10,000 for a new battery does make a big difference. Guarantees from some manufacturers of up to eight years on the battery look good, but they haven’t yet been thoroughly tested.
The ‘Stick and carrot’ approach by all Western countries’ governments to move consumers towards EVs is starting to unravel for any number of good reasons. It’s not difficult to see why this is failing, not least because governments are rarely the best source of sound information on consumer’s purchase decisions, to say the least.
In basic terms, consumers are backing off from EVs. The growth rate of sales of new EVs has fallen – In UK the numbers dropped from 16.50% of total market share of new cars to 14.70% between 2023 and up to April 2024. It doesn’t look like much, but it’s not what the Government was hoping for.
More significantly, the latest EV registration data shows that although demand from the fleet and business market grew by 41% in January, private registrations fell by 25.1%.
As Hertz, in the US, dumped both 30,000 EVs and the CEO who’d bought them, I’d suggest that there’s a message worth learning.
Plus – try and get an EV repaired after a shunt, insure against this, and look at the depreciation over two years
.

Kent Ausburn
Kent Ausburn
6 days ago

Who cares if China dominates the ev market? Nobody wants the damn things and the chinese ev inventory is already backing up in Chinese lots.

Arthur G
Arthur G
8 days ago

There’s a simple solution, DON’T transition to to EVs. EVER.
The West can comfortably remain using the internal combustion engine forever. We have hundreds of years worth of oil and natural gas. Diesel engines can also run on coal tar and vegetable oil (which was Rudolph Diesel’s original plan) If any of that ever runs out, switch to hydrogen. Hydrogen can easily be created from water using electricity from nuclear plants.

Arkadian Arkadian
Arkadian Arkadian
8 days ago
Reply to  Arthur G

Unless I have a gun pointed at me, I am not intending to.

D Walsh
D Walsh
7 days ago
Reply to  Arthur G

Forever is a long time Arthur
Also electricity is cheaper than petrol/Diesel, the UK is running out of oil, and Europe imports too much
Hydrogen is a dead end, it will never happen on a large scale

Martin M
Martin M
7 days ago
Reply to  D Walsh

The motto “Drill baby, drill” seems apposite here.

D Walsh
D Walsh
7 days ago
Reply to  Martin M

You can drill as much as you want, most countries just don’t have the oil, so they will tend to support efficiency, that means electric

I’m not say 100% electric, but it will clearly increase mainly as Diesel declines, outside of a few small countries, I can’t see a ICE ban working, the people getting angry about that can stop worrying

Martin M
Martin M
6 days ago
Reply to  D Walsh

Well, I am in my 60s. I am hopeful of seeing my life out without ever having to endure the indignity of driving an electric car.

Dougie Undersub
Dougie Undersub
7 days ago
Reply to  D Walsh

When you factor in the huge “investment” needed to make the grid capable of handling all those EVs, heat pumps and windmills, electricity is going to get a lot more expensive.

Arthur G
Arthur G
7 days ago
Reply to  D Walsh

The UK sits on a mountain of coal. It’s only Green stupidity that prevents you from using it. The vast majority electricity is generated by gas, oil, and coal.
Wind and solar are not energy dense enough to work, and their large scale implementation causes environmental damage far worse than gas or oil. Billions of birds killed, entire habitats destroyed, toxic metal mining for production and the batteries needed for storage, another toxic hazard when you have to dispose of all of that.

D Walsh
D Walsh
7 days ago
Reply to  Arthur G

Well I don’t know, would you like to be a Coal miner ?
Their are other way of generating electricity than wind/solar, the obvious one in Nuclear. and there is something else on the way 🙂