5 Ridiculous Things About The China–World EV Tariff Dispute — On Both Sides
One of the biggest issues in the electric vehicle industry lately has been Chinese electric vehicle exports to the US and Europe and whether those vehicles should face high tariffs. The argument is that China* is heavily subsidizing electric vehicle production, which leads to artificially low prices for its electric vehicles in the US and Europe, which makes it hard for US and European automakers to compete and sell their own EVs, which is not fair according to international trade rules and threatens the finances and future survival of US and European automakers.
Steve Hanley just wrote a much better article on this topic than I’m sure I’ll write, and it includes more details and perspective on the EU tariffs that were just announced, so I recommend reading that. However, as this controversy has been going on for the past several months (or more), a few things have stuck out to me as a bit ridiculous (or very ridiculous). They get mentioned here or there, some more than others, but I think the following five things deserve recognition for how ridiculous they make the current disputes.
As it turns out, these are not exclusive to one side. Some are on the Chinese side, while others are on the US & European side. Nonetheless, all together, they make this whole dispute look like a child’s game where both sides are continually changing the rules, crying, fighting, and then changing the rules again. Maybe there are no simple solutions here. It seems like the most useful thing would be to establish some simple rules for international trade that all parties track clearly and can show to prove their case to a 5th grader. But maybe that just can’t be done with grown-up versions of cheating 2nd graders and the overly ambitious rulers of the world and titans of industry. Anyway, on to the list.
Outsourcing to the max! First of all, we have to acknowledge that western countries outsourced and outsourced and outsourced for decades in order to lower costs and maximize profits. American and European consumers were happy to take advantage of cheaper labor and lower environmental and human rights regulations in order to get their stuff cheaper. And, for the most part, no one was concerned that stuff produced in China took advantage of all those differences in order to make production of the same goods in the US and Europe uncompetitive. Free trade and all that. Granted there was some degree of protest all the way back to the ’90s (I was involved in it to some degree). However, the majority of US companies and consumers were just happy to save money and for US companies to make more money and the backs of overworked and underpaid Chinese people. (Or substitute in European companies and consumers for Europe.)
China’s own requirements for auto companies: However, there’s something on the other side that has long irked me. US and European automakers were long required to form a joint venture with a Chinese company in order to produce electric cars in China. For years, if Volkswagen or Ford or some other automaker wanted to bring its products and local manufacturing to China, they had to join themselves at the hip with a Chinese company. It was always a ridiculous requirement, in my humble opinion, and I therefore find it a little rich now for China to complain about unfair trade barriers. Interesting enough, it was Tesla that was the first auto company (not just electric car company, but auto company of any kind) that didn’t have to fulfill that requirement and could build cars in a factory 100% owned by Tesla.
Let’s go back the other way again, though.
Bailouts: There’s concern in Europe and the US about government-supported car companies entering their markets. But what happens if big car companies in these markets go bankrupt or risk going bankrupt? They are “too big to fail” and just get bailed out. Are they not, then, unfairly government-supported companies?
US & European manufacturing subsidies: US and European companies also get extensive subsidies from national, state, and municipal governments to build factories and produce goods within their borders. There are vast tax breaks, land giveaways, and a variety of diverse subsidies for manufacturers. Again, does this not provide an unfair trade advantage? Why is this okay but Chinese car companies getting the same kind of support from their local, state, and national governments is not?
China’s tariff on European cars: The last item on my list goes the other way again, though. As Steve wrote yesterday, “China already applies a 15% duty on all electric vehicles imported from Europe.” Why? Why is it okay for China to put tariffs on imported electric cars but not okay for Europe to do it on Chinese electric cars, and if there’s a rationale for the tariff from Europe to China being 15%, who’s to say there isn’t an equally fair rationale for it being 21% in the other direction?
I’m sure it’s not going to happen, and I imagine I’m naive here in multiple ways, but it seems to me there should be some shared accounting system and even a shared platform or tool combined with simple, clear rules for international trade that can indicate if a car should have an import duty of 6.7% or 7.8% or 13.1% or whatever, and parties should adhere to those rules the same in either direction. We should be done with “but their governments gave them too much support and its not fair!” That’s far too simple, objective, and clear, though, isn’t it? If some big automakers aren’t competing well, they are sure to rope their governments in to try to change the rules or block competition. Or is that, indeed, just the issue we’re facing now?
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