China’s EV surge threatens to shock global markets

The transition to electric vehicles or EVs promises massive dislocation. Conventional cars have twice as many parts as electric vehicles, translating into far fewer assembly hours. 

Striking for wages and security against Detroit’s ‘Big Three’ car manufacturers, the United Auto Workers trade union claims that the transition endangers 35,000 jobs among its 150,000 members.

Yet, upstart firms, exemplified by Tesla, Rivian and SK On, are hiring non-union workers from outside the established industry, while Ford and its counterparts are building EV and battery plants in right-to-work states outside the United Auto Workers’ purview. 

On top of these disruptions comes the threat of new competition from Chinese automakers.

The United States government wants two-thirds of new cars sold in 2032 to be electric. The European Union is even more ambitious, wanting all new cars sold to be electric from 2035. 

But neither wants to import EVs from China. 

Low-cost EVs

Still, with generous subsidies, abundant engineering talent, a flair for innovation, a huge domestic market and public support for decarbonization, China has become the dominant manufacturer of low-cost EVs.

Last year, the country produced almost 60% of the world’s EVs – both battery electric vehicles and plug-in hybrid versions. 

This year, production it expected to reach eight million units, or 25% of all cars sold in China compared with 22% in the European Union, 6% in the US, and a measly 3% in Japan. 

Chinese firms also offer 90 different brands at prices ranging from US$5,000 to $90,000. The average EV in China cost around €32,000 or $53,800 in 2022, compared to an average of $94,100 in Europe.

While Chinese imports accounted for only 3% of Europe’s EV sales in 2022, investment bank UBS expects this figure to reach 20% by 2030.

The European Union objects to Chinese subsidies for its EV firms and EU Trade Commissioner Valdis Dombrovskis is actively encouraging China to produce EVs for domestic consumption, not exports. 

In response, China has assailed the protectionist EU policy direction. 

Whether Dombrovskis would welcome a Chinese EV factory in Europe is unknown, but that would contrast with the probable Washington reaction.

Jobs at risk

If other countries had no auto industries and if Beijing did not pose a military threat, everyone would welcome cheap Chinese EVs. 

But in the world, as we know it, they are more of a burden than a blessing. This is because large-scale exports put millions of jobs at risk.

Other countries also fear China hovering over the geopolitical landscape.

Globally, the auto industry employs some 14 million workers who manufacture $3 trillion worth of vehicles annually. 

The EU’s industry employs about 2.5 million workers, while the US, Mexico and Japan each employ about one million people. 

Jobs outside China are evidently under threat, though the country’s own four million auto workers are also at risk of losing their jobs.

Last year, global car exports were worth $780 billion, more than a quarter of world production. 

The EU led the export parade with $407 billion, followed by Japan with $87 billion, the US at $58 billion, South Korea at $52 billion and Mexico with $47 billion. 

China was ranked in sixth place with $45 billion worth of exports – roughly 40% of which were Teslas.

Western auto groups

Still, Chinese exports grew by more than 80% in 2022, and that is just the beginning.

Looking back in time, Western auto groups fear that China could repeat the process by which it became the dominant force in the world steel industry. 

During Mao Tse Tung’s regime, small backyard furnaces were a bad joke. 

But Deng Xiaoping’s embrace of market economics, coupled with heavy subsidies, enabled the nation’s great leap forward in steel production. 

In 2021, China crushed all its rivals with 1.03 billion tons of output – a substantial 60% of the world’s total 1.82 billion tons. 

The EU was a distant second with 153 million tons, followed by India with 118 million tons, Japan with 96 million tons and the US with 86 million tons.

American auto tariffs are only 2.5% with the exception of a longstanding 25% tariff on pickup trucks. But Donald Trump imposed an additional 25% on all Chinese cars, which has been extended by President Joe Biden. 

EU car tariffs are 10% and Japan’s are zero. Idiosyncratic regulatory standards and vehicle taxes that vary with engine displacement are additional barriers to trade.

Since Beijing’s own tariffs on auto imports range between 15% and 25%, Carlos Tavares, the CEO of Euro-American automaker Stellantis, called for Europe to impose reciprocal tariffs on auto imports from China.

Chinese EV brands

Many countries in the Global South will welcome less expensive Chinese EV brands. 

But to slow their dominance, advanced countries are almost certain to raise existing barriers or impose quotas that limit the Chinese share of the market. 

EVs could well exemplify the fragmentation of world trade.

Gary Clyde Hufbauer is a Senior Fellow at the Peterson Institute for International Economics.

This article is republished from East Asia Forum under a Creative Commons license. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.