Panel Asks If Trade Barriers Are Needed Because of China's EV Rise

China's exports of cars have jumped sharply as its domestic car demand has flattened, experts said, but the impacts for U.S. auto production may not repeat what happened to other manufacturing sectors undercut by cheap Chinese imports.

A Washington International Trade Association webinar on the rise of China's electric vehicle manufacturing noted that there are two barriers to major Chinese incursions into the U.S. auto market. One is that cars from China face a 27.5% tariff, whereas imports from Germany or Japan face only a 2.5% tariff. (Imports from Korea, Mexico and Canada face no tariffs as long as they meet rules of origin.)

This barrier is just as high as the 25% tariff on pickup trucks for all countries outside North America.

Panelist Michael Dunne, CEO of ZoZoGo, a business intelligence firm covering electric vehicles, chargers and the EV battery supply chain, noted that Chinese EVs also can't benefit from the consumer tax credits for EV buyers. (However, Polestar, a Chinese-built EV from a Volvo subsidiary, does offer $7,500 discounts on leases. The Inflation Reduction Act allows leased vehicles to receive the benefit even if they are built outside the U.S.)

As big a barrier, though not one Dunne initially pointed to, is whether Chinese-manufactured cars could meet U.S. safety standards. Dunne said the most advanced cars from China's No. 1 automaker, BYD, cars that cost $70,000, "certainly" could pass. But, he said, most Chinese EVs are in a different class, and would not meet safety standards.

Even if China does not export into the U.S. in significant volumes, it could hurt American automakers by taking some of their global marketshare. Dunne noted that China is exporting to more than 100 countries in South America, Africa, the Middle East and Europe.

The Asia Society Policy Institute's Wendy Cutler, webinar panel moderator, noted that China became the No. 1 auto exporter in the world so far this year, surpassing Japan. She said many of those exports are from U.S., Japanese and European automakers' Chinese factories -- Teslas, Volkswagens and General Motors brands -- but also "very affordable cars" that sell between $10,000 and $12,000 from Chinese brands, destined for developing countries.

Hosuk Lee-Makiyama, director of the European Centre for International Political Economy, said China has made inroads in the European market through purchasing either European brand identities, such as MG, or buying European companies, such as Volvo. Teslas and Volkswagens made in China are also sold in Europe.

He said China is the third-largest car and truck exporter to Europe, with nearly 600,000 vehicles, or about 5.6% of the market. But, he said, "most of them are actually Teslas," with Volkswagens, Audis and Polestars making up most of the rest. "The average price per unit of Chinese imports is much, much higher than any other export on the market," he said.

He said that Chinese brands account for about 1,000 vehicles a year in Europe, less than 0.1% of the market. Lee-Makiyama, a Swede, said his compatriots see Geely, the Chinese company that bought Volvo (and that produces Polestar EVs), as a savior. He said Volvo "was run into the ground under Ford ownership."

Safety standards definitely are a trade barrier, he noted. He drives a Tesla made in China; the EU does not allow Teslas manufactured in the U.S., as they say they do not meet safety standards. He said the Tesla Cybertruck would have "to be redesigned completely in order to pass the hurdle in Europe."

He noted that there's also the fact that the Chinese taste in EVs is very different from U.S. and European desires. The U.S. prefers SUVs, and both countries want a lot of range -- at least 250 miles. In China, EVs have a 20-30 mile range, and SUVs are a small segment.

Lee-Makiyama said Europe has focused on the need to quickly transition to electric vehicles, and has offered EV subsidies to consumers regardless of where the cars are made. He said that is destroying small and medium-sized firms that made autoparts for internal combustion engines and for transmissions. Only half the auto industry's employment in Europe is at the vehicle manufacturers; the rest is in the parts supply chain.

"That’s being wiped out in record short time," he said. He said he talks to families who ran a business for four generations, companies with about 1,000 employees who supplied automakers. "We went from record profit to shutting down in five years," he said they tell him.

"We actually subsidized the killing of our own auto supply chain," he said. "There will be some kind of corrective. The question is: 'When that will happen?'"

Lee-Makiyama suggested that there could be trade remedies against both U.S. and Chinese vehicles, due to the manufacturing incentives in the IRA.

Cutler asked the chief counsel for China trade enforcement at the Office of the U.S. Trade Representative if the U.S. government is concerned about China's EV industry. Brian Janovitz said the administration is concerned, especially because China has intervened so heavily to dominate the critical minerals mining, refining and EV battery supply chain.

Janovitz said auto industry jobs are "good paying jobs, often union jobs," and often jobs that can be done without a college degree. Threats to these kinds of jobs "are taken seriously."

Cutler asked Janovitz if the 27.5% tariff and the IRA restrictions are enough to head off an onslaught of imports from China.

"You want to be out ahead," Janovitz replied. "If you wait for sort of a flood of imports to swamp the market, you will experience harm."

He added: "We will obviously continue to assess the challenges; we are vigilant to the threat."

Cutler asked if this issue is being examined in the Section 301 review, and he said it is.

Jeffrey Kessler, a former assistant secretary for enforcement and compliance at the Commerce Department, now a partner at WilmerHale, said: "It will be interesting to see whether there are changes to EVs coming out of that" Section 301 review.

He added that you could potentially use antidumping and countervailing duty law -- even when there are no imports -- and he thinks the administration has considered it for the auto sector. "But I think it is more cumbersome as an industrial policy tool" than sections 232 and 301, he said.

Panelists noted that Chinese automakers and autoparts makers have opened factories in Thailand and Mexico and are working on factories in Vietnam. These allow the companies to avoid Section 301 tariffs if they are exporting to the U.S., as long as CBP finds there was substantial transformation in the new country.

"The tools for addressing circumvention could perhaps use some freshening up," Kessler said. "There’ll be use of tools in different ways to try to get at a perceived problem." But he said trade remedies have only been able to "slow down the advance of foreign players, not stop them in their tracks."

China has not opened EV battery factories in the U.S., but there is a licensing deal between Ford and CATL, China's biggest EV batterymaker, to produce lithium phosphate ion batteries. In response to a question from International Trade Today, Kessler said: "There’s a lot of congressional interest in Ford and its partnership with a Chinese company. I think it’s just unclear where it’s going to go."

He said there's a lot of deliberation in the government to make sure that such a partnership is in America's interests, but also said it's not a foregone conclusion that it's notin America's best interest.

Dunne added that the CATL and Ford deal is "a hugely significant test case for the United States government." From a commercial perspective, he said it makes a lot of sense for Ford, as this sort of battery is less expensive, and China has a monopoly on the technology.

But, at the same time, he wondered if we really want China's No. 1 battery maker to underpin Michigan's shift to EVs. He said he'll be "watching very closely how that works out."

Janovitz said that while the U.S. is not seeking to create two separate ecosystems in the EV space, "these are critical technologies and products for meeting our Paris agreement goals -- we cannot allow ourselves to be overreliant on China."