OPINION on US tariff update for Chinese electric vehicles and the direction of motorism

After announcements of a pending US tariff update on Chinese electric vehicles (EVs) made over the past several months, US president Joe Biden announced that he imposed new tariffs on products made in China on May 14. In addition to the significant tariffs on steel, aluminum, semiconductors, and solar panels—a 100% tariff was added on Chinese-manufactured EVs.

Although Biden accused China of subsidizing its EVs in a competition-averse manner, the US had not filed a complaint on these Chinese subsidies through the World Trade Organization. Interestingly, China did open a complaint on US EV subsidies as part of the Inflation Reduction Act (IRA) earlier this spring.

The last major tariff update implemented by China on automotive imports from the US (as well as on other imports) took place on August 23, 2019, when the Chinese government raised duties on these vehicles from 15% to 25%. Notably, Tesla was exempt from this tax increase.

GM Authority asserted that this Chinese tariff update compounded other already-existing tariffs for US-made vehicles, such that the total tariffs on US-made vehicles was close to 50% at the time. An important distinction should be made for US-brand vehicles manufactured in China as they are not subject to this same tax rate—these arrangements ultimately helped US companies in the Chinese market circumvent otherwise heavier taxes they would have felt had they relied exclusively on exporting to China.

On the US market side, the only Chinese-manufactured EVs that were sold in the US in Q1 2024 were Polestars, a joint-venture between Volvo and Geely. Less than 3,000 units were sold in the US in this period. The announced tariffs will reduce the competitiveness of various Chinese-made products or complicate any future entry of Chinese automotive brands into the US market.

Some other Chinese-manufactured vehicle models are also sold in the US, although they too are not under Chinese brands. Models manufactured in China currently sold in the US include the Buick Envision, Lincoln Nautilus, and Volvo S90. Further models made in China were also sold in the US in certain periods starting from around 2016.

Meanwhile, some US automotive brands have already enjoyed significant Chinese market access for years now. While this access is subject to unique conditions which have been set and maintained by successive PRC (People’s Republic of China) governing leaders, it’s still more generous than the absolute restriction of access to the US market for Chinese automotive brands.

After the US’s two-decade blockade on PR China from 1950 to 1972, US automotive manufacturers saw opportunities in the Chinese market. However, access to the Chinese market was subject to unique conditions: the Chinese administration insisted that automakers’ access to their market required transfers of knowledge and technology as opposed to simply selling products on their market. These conditions set by the Chinese administration(s)—particularly Deng Xiaoping, who himself was an automotive worker, are detailed further in Yuan Jia-Zheng’s and Carles Braso Broggi’s The metamorphosis of China’s automotive industry (1953–2001).[1]

While a small portion of foreign automobiles in China were simply either sold or assembled as pre-completed units, the entries of large US auto producers were conditioned on establishing joint ventures with Chinese auto producers—the first of which was American Motors Company (AMC), who after years of negotiations agreed to buy a minority stake in Beijing Automotive Industry Company (BAIC). The result was the entry and production of the Beijing Auto Works (BAW) version of the legendary Jeep Cherokee (XJ), one of the longest-produced platforms ever made and sold in the US. Under the AMC-BAIC partnership, this platform was marketed as the Beijing BJ2021.

Similar negotiations followed with other US auto producers. General Motors (GM) had begun negotiating with opening a joint-venture in China as early as 1979. However, the first jointly-managed SAIC (formerly Shanghai General Motors Company)-GM plant in China started mass production on December 17, 1998, with the rollout of the Chinese-marketed Buick New Century. The US domestic market (USDM) version was known simply as the Buick Century. Since then, several more US-brand models have been produced, with production expanded to the point of exporting to several countries from China. Furthermore, it was in this kind of advanced exchange arrangement that Tesla got an exemption from the Chinese tariff increase on US vehicles from August 2019 (see above). Overall, US-brand and engineered automobiles have been mass-produced and sold in China for a considerable time now.

While Chinese-brand automobiles have been on several neighboring markets to the US, the US market itself is still off limits in this regard. The only exceptions are cases of non-Chinese-brand vehicles being manufactured in China and sold in the United States. These models compose a modest portion of all mass-produced models on sale in the US market.

Past grievances in US-Japan automotive trade relations

The timing of Biden’s May 14 announcement of China-specific EV tariffs is indicative. In a moment when his 2024 presidential election campaign is failing to appeal to a significant portion of his own base due to his administration’s relations with Israel, the tariff announcement undeniably appeals to those Trump has marketed to—hence his record of initiating the modern trade war against China. Biden even criticized Trump’s escalating tariff policy on Chinese products ahead of the 2020 US presidential election.

Previously, another trade war took place since the 1980s, when the US experienced a growing trade deficit with Japan. In this period, Japanese-brand automobiles made significant inroads into the US market. Significant portions of the US media, intellectual, and political class at the time considered the US trade deficit with Japan as a security threat.

In the spring of 1985, the US Senate under the Reagan administration passed a resolution pressuring Reagan to seek greater Japanese market access for US products, with a threat to ban imports from Japan if such an endeavor wasn’t successful. The bill was passed ahead of the 11th G7 summit held in Bonn, Germany.

This CNN text even insinuated that the severe drop in Japanese GDP growth in 1986 was a result of the 1985 bill. US dollar strength in the mid-1980s simply was not conducive to US export strength. That’s why devaluation of the US dollar relative to the Japanese yen was a fundamental condition of the Plaza Accord signed in 1985. This agreement, although advantageous to the US in its bilateral trade with Japan, contributed to Japan’s significant economic stagnation—also known as the Lost Decades.

After diverging from his own legislative branch with his unwillingness to extend Japanese import quotas years before, Reagan imposed a 100% tariff on a slew of Japanese electronic products in March 1987. They were implemented right before a scheduled visit of Japanese Prime Minister Yasuhiro Nakasone to the US that spring. The tariffs specifically targeted Japanese producers of electronic products on the US market and made them less competitive.

The Japanese side expressed their grievance on the new Reaganite tariff. Japan’s International Trade and Industry Minister Hajime Tamura said that the new Reagan tariffs were “completely impossible to understand,” adding that Japan could be compelled to abolish the 1986 Japan-US Semiconductor Agreement (refer to previous hyperlink to the Los Angeles Times). That summer, a theatrical display took place on Capitol Hill when members of Congress used sledgehammers to smash a Toshiba radio after published news of unrelated Toshiba equipment being sold to the Soviet Union.

A hypothetical change in Japanese semiconductor (as well as similar tech) trade with the US, such that Japan would decide to sell such technology to the Soviet Union, represented a peak point of paranoia on the US decision-making side. Precisely this scenario was illustrated in Ishihara Shintaro (Japan’s Minister of Transport 1987-88) and Morita Akio’s (Sony co-founder) The Japan that Can Say No (1989)—the authors, in addition to articulating grievances against US double standards in its bilateral relations, argued this hypothetical switch would be more likely and rational if the US continued economic escalation with Japan. The US Defense Advanced Research Projects Agency (DARPA) allegedly translated the work into English without the authors’ permission.[2]

Other examples of US-Japan trade anxiety of the era include a range of published and informal works from George Friedman and Meredith LeBard’s The Coming War with Japan to Japan 2000. The latter was a Central Intelligence Agency (CIA)-commissioned draft report by former US Air Force colonel Andrew J. Doughtery, whose contents were made known to the public indirectly in 1991. The draft report’s language in describing perceived Japanese goals and business practices was dehumanizing and embarrassing enough that the agency and draft authors subsequently distanced themselves from their own report.

Moments of extreme distrust and paranoia against foreign trade partners like Japan were frequent in the American political discourse. In his 1984 presidential bid to unseat Reagan after his first term, Democratic candidate Walter Mondale told steelworkers that “if you try to sell an American car in Japan, you better have the United States Army with you when they land on the docks.” He rhetorically asked whether American kids would be made to “sweep up around Japanese computers.” Columnist James Reston was shocked enough by these statements that he personally asked Mondale whether he really made those statements, only for Mondale to confirm—adding that he didn’t reserve such rhetoric exclusively for blue-collar workers but also talked with executives like from General Electric (GE) in a similar manner.

In the 1988 US presidential election cycle, Richard “Dick” Gephardt was the most prominent Japan trade hawk of candidates vying for the 1988 Democratic presidential nomination. A few months prior to the Democratic Iowa caucus on February 8, 1988, Gephardt polled in the single digits. However, on December 26, 1987, his campaign began airing televised ads which asserted that Korean (South Korea also being subject to criticism in his campaign) tariffs would price a Chrysler K-car (a successful platform shared by a slew of Chrysler, Dodge, and Plymouth sedans, wagons, coups, and convertibles) at the equivalent of $48,000 in the South Korean market, even though the K-car in the US started only at around $10,000. More impartial analysis asserted that the Korean tariffs actually had the K-car price in South Korea almost $20,000 lower. Gephardt, with a moment of support from the United Auto Workers (UAW), exploited Iowa voters’ mood and surprised the public when he won a hard plurality in that state.[3]

Overall, Gephardt’s competition that year (not to mention the Reagan administration itself) did not really share his grievances on trade relations with countries like Japan and South Korea. However, this was not the case in 1992 US presidential election, when a whole slew of candidates across both Democratic and Republican primaries—as well as multiple third-party campaigns, including the Ross Perot campaign—all made a point that if elected, they would be “tough” on Japan.[4] It will be interesting to see whether the most popular US presidential candidates diverge at all on the continuity of the US-China trade war.

Motorism and the future

The grievances expressed by US decision makers, while reflecting a real lopsided trade deficit and lack of reciprocity in the bilateral market access of Japanese and American car producers, didn’t mean that the competition didn’t contribute to critical innovations in the automotive world. If it weren’t for competition between automakers worldwide, the public might not have seen the advancement in tech and optimal composition of engines and vehicles until years later.

One may consider the earlier manifestations of aluminum introduced in mass-produced car engines like the Chevrolet Vega and its aluminum block, cast iron head engine with no metal sleeving. The combination of metals and lining were such that the alloys didn’t expand and contract with engine temperature in an ideal manner, resulting in premature oil burn, overheating, and failure.[5] Otherwise, cast-iron block and aluminum head combinations were much more common among mass-produced USDM vehicles into the 2000s.

The competition posed by foreign auto manufacturers was brutal in this regard. Engineers from all over the world worked in competing companies and struggled to reduce the weight of engines (not to mention of the vehicle as a whole) and find an optimal combination of metals for durability and fuel efficiency. They all encountered many hurdles in keeping up with the trend of increasing aluminum input into mass produced vehicles and engines.[6]

There are countless areas where major advances could be made, even if they don’t involve EVs. Intercity and urban transportation can be expanded to substitute for high-density air and road routes when the terrain allows. Cars on the road as well as existing refueling infrastructure could be retrofitted and replaced with a fuel like propane while new alternative-fuel vehicles expand their share of the market. It’s no surprise given the current circumstances that propane vehicles are popular in the developing world. Methanol was successfully reproduced from renewable sources, although most methanol in China still originates from coal burning. Both the Chinese and US governments still found it interesting enough as an alternative to subsidize methanol pilot programs.[7]

With that said, I’m under no illusion that the advancement of EVs alone, whether by cooperation or nationalist competition, won’t address pressures on climate and resources alone. Jevons paradox asserts that advances in efficiency are followed by a rise in consumption of resources. This is how historic initiatives intended to reduce congestion on highways by adding lanes have in many cases paradoxically encouraged and intensified traffic. Admittedly, the scope in which Jevons paradox is applicable seems to be disputed.

Either way, while EVs may offer lifetime improvements in emissions over combustion engine vehicles, the demand for materials to manufacture them may be no less controversial than those made to produce conventional vehicles today. Therefore, they too may provide motivation for global powers with higher consumption to behave in a predatory manner to secure corresponding resources at the expense of countries in which such resources are located. I personally have a great appreciation for cars and the freedom they offer–I hope to enjoy driving in my leisure in the future. Yet centering infrastructure around motorism contributes to these consumption needs which can in turn contribute to very unflattering geopolitics.

One such consequence is the “you’re with us or against us” behavior evident in US animosity towards Chinese investments in third countries. Both the Atlantic Council‘s recent paper series and the US SOUTHCOM General expressed interest for Latin American resources coveted for EV production and their concern over the Chinese Belt and Road Initiative (BRI), while expressing discontent from China being a primary investor in green energy transition among countries in that part of the world. One text from their paper series acknowledged “resistance in the region to joining coalitions with an explicitly anti-China orientation, as countries favor a diversity of partnership.”[8]

Yet it’s in everyone’s interest to diversify their global relations and not have all their eggs in one basket. It’s odd to expect otherwise. Innovation and economic growth shouldn’t be weaponized by paranoia and Cold War maximalism. China and the US have a lot in common when it comes to protecting their sensitive industries. While there’s more convincing criticism of Chinese automotive industry practices such as repeatedly copying foreign designs without permission, the stated rationalization behind Biden’s tariff update looks more like a continuation of the China trade war from the Trump administration. It would be a great shame and insult to people’s intelligence if the US-China trade war–let alone the microcosm of this trade war in the automotive world–continues and disrupts global advances regardless of who’s elected president of the United States.

Citations

[The metamorphosis of China’s automotive industry (1953–2001): Inward internationalisation, technological transfers and the making of a post-socialist market by Yuan Jia-Zheng and Carles Braso Broggi (2023). https://www.tandfonline.com/doi/full/10.1080/00076791.2023.2247366]

[p.59, Japan-Bashing: Anti-Japanism since the 1980s by Narelle Morris (2010).]

[The Washington Post Opinion: …and Mr. Gephardt’s (sic). February 9, 1988.]

[p.61, Japan-Bashing by Narelle Morris.]

[EngineBuilder: Honing Aluminum Blocks by Larry Carley. April 22, 2016. https://www.enginebuildermag.com/2016/04/honing-aluminum-blocks/]

[WardsAuto: Aluminum Makes Gains in ’99s But cast iron is more the victim than steel by Drew Winter and Bill Visnic. September 1, 1998. https://www.wardsauto.com/news-analysis/aluminum-makes-gains-99s-cast-iron-more-victim-steel]

[MIT Technology Review: China is betting big on another gas engine alternative: methanol cars by Zeyi Yang. September 30, 2022. https://www.technologyreview.com/2022/09/30/1060508/china-betting-methanol-cars/]

[Atlantic Council: A strategy to counter malign Chinese and Russian influence in Latin America and the Caribbean by Matthew Kroenig, Jason Marczak, and Jeffrey Cimmino. February 12, 2024. https://www.atlanticcouncil.org/content-series/atlantic-council-strategy-paper-series/a-strategy-to-counter-malign-chinese-and-russian-influence-in-latin-america-and-the-caribbean/]