Author: Gary Clyde Hufbauer, PIIE
The transition to electric vehicles (EVs) promises massive disruption. Traditional cars have twice as many parts as electric vehicles, which means assembly times are much shorter. Striking for wages and protections against Detroit’s ‘Big Three’ carmakers, the United Auto Workers trade union claims the change puts 35,000 jobs among its 150,000 members at risk.
Meanwhile, upstart firms like Tesla, Rivian and SK On are hiring non-union workers from outside the established industry, while Ford and its counterpart United Auto Workers are building EV and battery plants in states with the right to work outside. Are constructing. scope. On top of these disruptions also comes the threat of new competition from Chinese automakers.
The US government wants two-thirds of new cars sold in 2032 to be electric. The EU is even more ambitious, wanting all new cars sold from 2035 to be electric. But no one wants to import EVs from China. Yet with generous subsidies, abundant engineering talent, a penchant for innovation, a huge domestic market and public support for decarbonization, China has become a major producer of low-cost EVs.
In 2022, China is projected to produce nearly 60 percent of the world’s EVs – both battery electric vehicles and plug-in hybrid vehicles. In 2023, production is expected to reach 8 million units, or 25 percent of all cars sold in China, compared with 22 percent in the European Union, only 6 percent in the United States and only 3 percent in Japan. Chinese companies also offer 90 different EV brands at prices ranging from US$5000-90,000. The average EV price in China in 2022 was around €32,000 (US$53,800), while the average price in Europe was €56,000 (US$94,100).
While imports from China accounted for only 3 percent of Europe’s EV sales in 2022, UBS expects that figure to reach 20 percent by 2030. The EU objects to generous Chinese subsidies for its EV companies and EU Trade Commissioner Valdis Dombrowski is actively encouraging China to produce EVs for domestic consumption, not export. In response, China has attacked the protectionist EU policy direction. It is unknown whether Dombrowski would welcome a Chinese EV factory in Europe, but if so it would be in contrast to the potential US reaction.
If other countries had no auto industry and if China did not pose a military threat, everyone would welcome cheap Chinese EVs. But in the world as we know it, Chinese EVs are more of a burden than a boon. This is because large-scale exports put millions of jobs at risk and other countries fear China’s looming influence on the geopolitical landscape.
Globally, the auto industry employs approximately 14 million workers who produce US$3 trillion worth of vehicles annually. The EU’s industry employs about 2.5 million workers, while the United States, Mexico and Japan each employ about 1 million workers. Jobs outside China are clearly at risk, although China’s own four million auto workers are also at risk of losing their jobs.
In 2022, global car exports were worth US$780 billion, more than a quarter of world production. The European Union led the export parade with US$407 billion, followed by Japan with US$87 billion, the United States with US$58 billion, South Korea with US$52 billion and Mexico with US$47 billion. Led the parade. China was in 6th place with exports worth US$45 billion – about 40 percent of which were Tesla. Still, Chinese exports surged by more than 80 percent in 2022, and that’s just the beginning.
Looking back in time, Western auto companies fear that China could repeat the process by which it became the dominant power in the world steel industry. During Mao Zedong’s reign, small backyard furnaces were a bad joke. But Deng Xiaoping’s adoption of market economics, along with heavy subsidies, enabled China to make huge leaps in steel production. In 2021, China crushed all its rivals in steel production with an output of 1.03 billion tonnes – 60 per cent of the world total of 1.82 billion tonnes. The European Union was second with 153 million tonnes, followed by India with 118 million tonnes, Japan with 96 million tonnes and the United States with 86 million tonnes.
Currently, the U.S. auto tariff is only 2.5 percent (except for the long-standing 25 percent tariff on pickup trucks). But former President Donald Trump had imposed an additional 25 percent punitive tariff on all Chinese cars, which Joe Biden has increased. The EU’s car duty is 10 percent and Japan’s is zero. Specific regulatory standards and vehicle taxes that vary with engine displacement are additional barriers to trade.
Since China’s own tariffs on auto imports range between 15 percent and 25 percent, Carlos Tavares, CEO of Euro-American automaker Stellantis, called for Europe to impose reciprocating tariffs on auto imports from China.
Many countries in the Global South would welcome less expensive Chinese EV brands. But to slow Chinese EV dominance, advanced countries are almost certain to increase existing barriers or impose quotas that limit Chinese market share. EVs could be a good example of fragmentation of world trade.
Gary Clyde Hufbauer is a Senior Fellow at the Peterson Institute for International Economics.