Biden’s 100% China EV Tariff Fails History 101

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Perhaps Biden has forgotten the last time America’s land yachts, marketed to the most affluent, became impossibly expensive symbols of conspicuous consumption. It was the same year he entered Congress after all, 52 years ago. But America and its car companies have indeed faced almost exactly the same situation as they face now, and responded very differently. And America’s car companies thrived.

There are similarities and differences of course. History doesn’t repeat, it merely rhymes (thanks, Mark Twain, American author). What happened in 1972 that is a lot like what’s happening now? It was an energy crisis, the OPEC Oil Crisis to be specific. A bunch of non-American countries that produced a lot of oil that America needed for its profligate ways decided to shut off the taps, causing a spike in oil prices.

Prior to that, the USA was awash in cheap foreign and domestic oil, and hence gasoline. Detroit’s average vehicle weighed two of those weird Imperial American tons. Today, American cars average 2.05 American tons. The supersizing of American automobiles today has an almost identical echo from the past. But when OPEC shut off the taps, those land yachts were suddenly incredibly expensive and inconvenient.

What happened? Toyota, Nissan, and Honda were building cheap, reliable, efficient cars because they weren’t Americans. Japan was emerging as an economic and industrial powerhouse. Fears about it eclipsing America were starting to arise. North American automakers failed miserably to build cheap, affordable, and fuel efficient cars.

Enter Japanese automakers. America (i.e., Detroit) embraced them to build the cheap, efficient, low-margin cars that American automakers weren’t interested in building. In 1982, 1983, and 1984, Honda, Nissan, and Toyota respectively opened American car manufacturing plants for the cheap cars Detroit couldn’t build. A lot of Americans who suddenly couldn’t afford land yachts could buy the cars that are so necessary for America’s unusual man-spreading suburbs.

And unusual it is. 92% of American’s daily trips are by car, compared to 45% for Europe and 30% in Asia. One of these things is not like the other. In North America, cars are incredibly hard to live without. In the rest of the world, they are usually a status symbol, sometimes a flaunting inconvenience, and often easy to live without.

Did American car companies disappear? No, they kept selling cars to their most profitable customers, the top 40% of American income earners. The middle 20% to 40% stopped wasting salespeople’s time kicking tires and bought Japanese cars. The bottom 20% to 40% had different used cars to buy. American car companies did just fine.

That’s history. During an energy transition in the USA, foreign car companies came in that could build and sell cars at low margins that less affluent Americans needed in order to live in the urban sprawl that a weird confluence of American nuclear war paranoia, racism, and corporate antipathy to transit had created. It worked out somewhat adequately. Was it without controversy? Not even remotely.

In the article “Can America Win the Car War?” in Reader’s Digest, Ronald Schiller highlighted the concerns about Japanese automakers, suggesting that American car manufacturers were struggling to compete with the high-quality, efficient production of Japanese companies. He emphasized the dire state of American competitiveness, framing the situation as a critical economic battle​. U.S. auto executives frequently testified before Congress about the challenges posed by Japanese imports. They often argued that Japanese companies were benefiting from unfair trade practices and government support, while American manufacturers faced high tariffs and restrictive standards in Japan. These testimonies often included stark warnings about the potential collapse of the U.S. auto industry if corrective actions were not taken​. Reagan, responding to industry pressures, negotiated a “voluntary export restraint” with Japan in 1981. He described the situation as one where American automakers needed “breathing room” to catch up to Japanese competitors, implying that without intervention, the U.S. industry could be overwhelmed by Japanese imports​.

Does any of this sound familiar? Is there any reason that the Chinese-cars-are-coming hysteria of today is different from the Japanese-cars-are-coming hysteria of the 1980s?

There was another thread emerging in American culture. While post-WWII America lifted all boats unequally, at least it lifted almost all boats. Black GIs may not have received the preferential rate mortgages for suburban homes that white GIs did, but America was a leading global manufacturer and there were jobs, jobs, jobs. Black people, women, and Hispanics may not have been receiving anywhere near the same pay or increases in pay as white men, but they were receiving incomes that were bigger. American manufacturing, grown to extraordinary size during the war, was trying, almost desperately, to find something to do with both that capacity and the returning GIs. The women who had been a mainstay of American manufacturing during the war were encouraged to return to kitchen and bedroom duties while the newly returned men did manly work.

Then came Reaganomics. That’s when very rich, mostly white men realized that money could buy tax breaks for themselves. Supply side economics, also known as voodoo economics, also known as the free market wet dreams of Friedman and Hayek — or at least their much less nuanced and much more predatory disciples — came into play. That’s when in America, the rich got richer while the temporarily embarrassed millionaire class — everyone outside of the 1% to 10% — started getting poorer.

From 1980 to recently, the bottom 80% — the massive majority — had flat or even declining real money incomes and buying power, while the top 20% and especially the top 1% accelerated away from most Americans. The Gini Index — the measure of statistical dispersion intended to represent the income or wealth inequality within a nation — for the USA went the other direction from most other western liberal democracies. In the USA, unlike most of Europe and Canada, the rich got a lot richer while everyone else didn’t get rich at all, or even lost real wealth.

That has had horrible consequence, but I’ll try to stick to the plot of Chinese vs US EVs. It’s easy to tell stories related to widespread and deserved grievances exploited by populist Republicans in the past decade, but the point is Biden’s 100% tariffs on EVS.

Related to EVs is the ability of the average American to buy a new car vs. a used car. The top 20% buy new cars every 1 to 4 years. Some of the 60% to 80% find it in their means to buy a new car every 4 to 8 years. Everyone else buys used cars that are increasingly old. In 1980, the average age of cars in the United States was about 5.6 years. By 1990, this average had increased to around 7.8 years. In 2023, it was 12.5 years.

Some of this is due to cars actually being better. They last longer now because all the bits are better. But a lot of it is due to rich people being able to afford new cars, American car companies shifting their product lines to pander to the richest and highest profit customers, and no one else being able to afford SUVs and oversized pickups.

Remember, in 1970, American cars were huge, gas was cheap, and then the crunch came. Now American cars are huge, only 20% of Americans can afford them, and a reality check has arrived.

Can American car companies adapt and sell the equivalent of Japanese econoboxes from the early 1980s? Not a chance, just as they couldn’t do it then. Could America say to Chinese automobile firms, sure, sell cheap cars that the average person can afford in North America, just do it with Chinese cars built in Chinese-owned factories on American soil, mostly employing Americans? Of course.

That’s what America did in the 1980s, and American car companies did okay. Of course, now Japanese car firms with factories in North America are the American car companies of 1970, also selling only higher margin SUVs and pickups to the top 20% of US income earners. They aren’t going to save America from itself because they now have a related corporate COVID, where plug-in hybrid vehicles are one of the symptoms.

Why is Biden, instead of following in Reagan’s footsteps and opening the doors to cheap Chinese EVs that will be great for the bottom 80% but not expensive ones that will compete with American or Japanese firms selling to the top 20%, putting 100% tariffs on cheap Chinese EVs? It’s obviously a destructive choice for most Americans, America’s economy, and America’s climate goals.

I think there are four or five things going on.

The first is that Biden is beholden to the union power block. This was apparent when unionized GM was feted as the leader in electric vehicles when it managed to sell 40 vehicles in a quarter while non-unionized Tesla was ignored. Unions are great until they aren’t. They are inherently protectionist of jobs for workers and that’s playing out around the world. Why? Electric vehicles are a lot simpler, so a lot fewer workers are required to do the assembling. Unions aren’t pleased with this. Workers’ organizations in multiple countries are fighting electrification because it might require fewer workers and hence less political power for the unions and workers’ organizations. Is this to say that unions are bad? Not at all. Just that like all human organizations, they have both good and bad impulses that express themselves in good and bad ways.

The second is America’s institutional Sinophobia. When Japan was threatening American industry, it was the defeated evil, the bombed enemy, the MacArthur pacified island nation, its flag lowered and its leaders bowing to Americans. America never defeated China. In the various east and southeast Asia proxy wars from 1950 to 1975, America didn’t exactly have any resounding successes. Korea? Vietnam? Cambodia? Laos? These aren’t celebrated in USA’s annual days of martial victory.

Third, there’s a lot of basic xenophobia and racism inherent to the USA. The amount of “China can’t do x or y because they are inferior because a or b” I’ve heard from Americans is mind boggling. China is graduating a lot more STEM PhDs than the USA annually, both domestically and in every educational institution abroad, and these are not buy-a-PhD children of Chinese mandarins. The quality 20 years ago was easy to consider inferior, but not today. Similarly, China’s patents have outstripped Americas, and they are not crap patents, if they ever were.

Next, there’s another ugly underbelly of America. Like all countries, it likes to have an external, dehumanized enemy it can rally most of its populace around. For 60 years, that’s been any country that could in any way have the label Communist attached to it. It’s invaded multiple tiny, barely defended countries since 1970 with overwhelming force based on the C-word. That it’s won a lot of battles and lost the vast majority of wars should be a cause for reflection, but it’s not. Now China is the great Communist boogey man, although CCP really should be extended to the Chinese Confucianist Party Regulating a Vibrant Market Economy.

Finally, there’s the march of history. While Ray Dalio’s principles and algorithms have turned out to be more commonly overridden by Dalio’s gut than observed, his Changing World Order is a reasonably good framework for understanding the world, a better and more dispassionate one than Allison’s Destined for War. The USA is in the moderately stagnant end phases of empires, likely but not inevitably required to cede its globetrotting swagger to the next empire, even if one founded a lot more on trade and commerce than guns and bombs. However, the title of Allison’s book is vastly more internalized in Washington than the soft-peddled lesson of the book that the USA is the problem, never mind Dalio’s transition of empires phases or Mahbubani’s or Jacques’ discussions of the realities of China and the USA.

Japan was the defeated enemy and a client state of the USA. Welcoming it to manufacture cars on American ground helped everyone. China should be welcomed in, as it’s only the imagined martial enemy because Washington’s politicians and military industrial complex require an external, Communist boogey man. But they can’t simultaneously vilify and embrace China. They were able to make it clear Japan was inferior while accepting superior Japanese cars, but even then the cognitive dissonance was powerful.

Not so much China. It has vastly more people than the USA. It is just as big geographically. Its economy has already surpassed the USA’s in real economic output based purchasing power parity, and it is one which is still growing much faster than the USA’s. It is the only scaled manufacturer of most of the products the world needs to decarbonize, offerings that the USA ceded entirely to China in pursuit of quarterly stock prices and dividends for shareholders over all else for the past 40 years.

Japan was humbled, hence acceptable and controllable. China isn’t.

And so we have Biden’s massive failure of a 100% tariff on cheap Chinese EVs. It’s not about what is best for Americans. It’s not about what is best for climate change. It’s not about what is best for American car companies that have proven themselves unable to service the bottom 80% of Americans for the past 40 years. It’s about China being scary and probably superior, with no illusions except the boogeyman of Communism to hide behind.