Analysis: A US-China EV trade war threatens Biden's clean-car agenda

Wuling Motors Holdings

14/05/2024 12:00

By Joseph White, Chris Kirkham and Nora Eckert
       DETROIT, May 14 (Reuters) - The Biden administration's
plan to slap heavy new tariffs on Chinese electric vehicles and
batteries would provide temporary protection for U.S. auto jobs,
potentially at the expense of White House efforts to fight
climate change by accelerating U.S. EV adoption.
    Few Chinese-made EVs are currently sold in the United
States, so the immediate impact on consumers of higher EV
tariffs would be minimal, analysts said. The White House also
plans to more than triple tariffs on Chinese EV batteries and
battery parts to 25%. Graphite, permanent magnets used in EV
motors and other EV minerals would get new 25% duties added.
These tariffs could affect a broader range of vehicles.
    U.S. President Joe Biden's administration issued tailpipe
pollution standards in April designed to drive the share of
electric vehicles up from 8% last year to as much as 56% by
2032. Automakers have warned that hitting the EV targets will be
challenging, in part because different Biden administration
rules deny federal subsidies to EVs that get too much content
from China. 
    Without access to lower-cost batteries and battery materials
made in China, EVs will be too expensive for mainstream U.S.
consumers, automakers have said.
    U.S. automakers exported 155,337 vehicles worth $6.3 billon
to China in 2021, according to the most recent U.S. government
data. China sent just 64,067 vehicles to the United States in
the same year, worth $1.45 billion. Most of the vehicles
imported from China were sold under U.S. brands, led by General
Motors'  GM.N  Buick division. 
    At present, four vehicle lines sold in the United States are
made in China, according to government data: Ford's  F.N 
Lincoln Nautilus SUV, the Buick Envision SUV, the Polestar 2 and
Volvo's S90 sedans. Polestar and Volvo are affiliates of Chinese
automaker Geely  0175.HK . 
    Chinese retaliatory tariffs that targeted U.S. vehicles
could hurt workers at the BMW  BMWG.DE  factory in Spartanburg,
South Carolina, which sends about 25,000 vehicles to China per
year, or the Mercedes-Benz  MBGn.DE  SUV plant in Alabama that
builds electric SUVs sold in the world's largest market.
    A clean-technology trade war between the United States and
China could also drive up the costs of EVs, batteries and other
EV hardware, keeping overall EV prices high, industry executives
and some analysts said. EVs wearing U.S. brands, such as the
Mustang Mach-E or Tesla  TSLA.O  Model 3, have 30% to 51%
Chinese content, according to U.S. Transportation Department
data.    
    "From the battery, from the mining, from all the technology
integration, the Chinese supply chain now is the leading supply
chain. It's the best," Stella Li, head of Chinese EV and battery
maker BYD's  002594.SZ  operations in the Americas, said at the
Milken Conference last week. "Why don't you allow a U.S. company
to have the freedom to choose the best supplier?"    
    Even before Biden's action on Tuesday, electric vehicles had
taken a central position in the U.S. presidential race. EVs are
now symbolic in partisan debates over climate policy and how the
U.S. should respond to China's efforts to dominate critical
technologies in the 21st century.
    Democrat Biden and his presumptive Republican opponent
Donald Trump agree on very little, except when it comes to using
steep tariffs and other trade barriers to keep Chinese EV makers
out of the U.S. market. Biden and Trump are betting that
anti-China trade policies will appeal to voters in swing states
such as Michigan, Wisconsin and Pennsylvania, which depend on
manufacturing jobs.
    
    A PAGE FROM CHINA'S PLAYBOOK
    Experts are divided over whether stronger tariff protection
will help U.S. automakers in the long run, or work to the
benefit of consumers.
    "The tariffs buy important time," said Michael Dunne, a
consultant who has watched the Chinese auto industry for years.
"The U.S. is five to seven years behind China when it comes to
electric vehicles and battery supply chains." China protected
its automakers in the 1990s and 2000s, Dunne said. "U.S.
political leaders could rightly say we are just borrowing a page
from China's playbook." 
    Advocates of speeding up the pace of EV adoption to cut U.S.
carbon dioxide emissions warn that reducing pressure from
Chinese EV manufacturers will backfire.
    Longer-term, Detroit automakers sheltered from Chinese
competition could replay the experience of the 1970s and 1980s,
when import restrictions on imported Japanese cars gave the
domestic automakers a reprieve from low-priced rivals.
    Those trade barriers encouraged Toyota  7203.T , Honda
 7267.T  and Nissan  7201.T  to transplant their lean production
systems to new U.S. factories. The success of North
American-made Japanese vehicles forced General Motors, Ford and
the former Chrysler, now called Stellantis  STLAM.MI , to shed
thousands of jobs and undergo painful overhauls in the 1990s.
    BYD's recent announcement that it plans to build an electric
pickup truck in Mexico transforms a hypothetical threat into a
real one for incumbent U.S. automakers. A Mexican-made EV with
sufficient North American-sourced parts could qualify for
tariff-free entry to the U.S. market. 
    "If General Motors, Ford and Stellantis don’t have to
compete against foreign companies that make EVs, they won't make
them. The market will go to BYD. And the Americans will lose
market share like they did in the 1970s," said Daniel Becker of
the Center for Biological Diversity, an environmental group that
has pushed the Biden administration for stronger climate
policies.
    It is not clear how China will respond to the Biden tariff
moves. When Europe threatened to hike tariffs on Chinese-made
EVs, China responded by threatening steep duties on French
cognac.
    GM President Mark Reuss last week downplayed the risk that
Chinese authorities could make life more difficult for the
Detroit automaker's Chinese operations, which dipped into the
red during the first quarter of this year. Two of GM's biggest
brands in China are U.S. names: Chevrolet and Buick.
    "For us in China this has been a great advantage for us to
be partnered so deeply for so many years with our JV partners,"
SAIC  600104.SS  and Wuling  0305.HK , Reuss said. In China,
Reuss said, Buick is seen as both an American and Chinese brand.
    "It's not as clean or as crisp as you might indicate from a
more global, geopolitical standpoint," he said. 

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Biden sharply hikes US tariffs on billions in Chinese chips,
cars     urn:newsml:reuters.com:*:nS0N3F70AP
FACTBOX-What are Biden's new tariffs on China goods?   
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 (Reporting by Joe White in Detroit
Additional reporting by Chris Kirkham in Los Angeles and Nora
Eckert in Detroit
Editing by Brian Thevenot and Matthew Lewis)
 ((Joe.White@thomsonreuters.com;))