In the United States, sharp disagreements exist over numerous critical national issues. However, there is bipartisan consensus on reducing dependence on China. The latest initiative from both the Republican and Democratic parties involves raising tariffs or invoking national security concerns to prevent Chinese electric vehicles (EVs) from entering the US market.
While blocking Chinese EVs from the US market might safeguard American jobs in the short term, it could hinder EV adoption and limit American consumers’ access to affordable EVs in the medium term. Rather than blocking Chinese EVs, the Biden administration should focus on formulating a long-term strategy.
As BYD announced in late February its plans to establish a factory in Mexico, Republican Senator Josh Hawley introduced the Protecting American Autoworkers from China Act of 2024. This proposed legislation seeks to raise tariffs on Chinese cars and auto parts – irrespective of their manufacturing location – from the current 25 per cent to a hefty 125 per cent.
If enacted, this law would prevent BYD from circumventing these tariffs by leveraging the United States-Mexico-Canada Agreement even if it produces its EVs in Mexico and satisfies requirements for rules of origin.
In late February, US President Joe Biden directed the Commerce Department to investigate whether Chinese smart EVs could pose a risk of Chinese cyberattacks. Citing potential national security threats, this investigation could lead to new regulations aimed at limiting data collection and foreign control over US-based vehicles.
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China’s BYD overtakes Tesla as world’s largest EV maker
China’s BYD overtakes Tesla as world’s largest EV maker
Hawley’s proposal and Biden’s directive reflect their concerns about the impact of Chinese carmakers on the US auto market and their intent to safeguard American autoworkers. However, these strategies could prove ineffective.
First, imposing additional tariffs on Chinese EVs could contravene the rules of the World Trade Organization and provoke retaliation from China. This could escalate the ongoing trade war, which is detrimental to both nations.
Second, using tariffs to discourage US carmakers from importing Chinese EV batteries and auto parts could inflate production costs, making US EVs less competitive. In the medium term, US carmakers cannot decouple from China as they rely heavily on Chinese auto parts.
Third, shielding the US auto sector could reduce the impetus for auto firms to innovate and produce affordable, reliable EVs. Partly owing to the perception that small cars yield small profits, US carmakers have concentrated on larger vehicles. For example, General Motors discontinued its popular Chevrolet Bolt EV, priced below US$28,000, last December. Instead, GM and Ford have focused on producing higher-priced electric SUVs and pickup trucks.
However, after years of high inflation, American consumers have become hesitant to spend. Consequently, the sales of these larger EVs fell short of predictions in 2023. When cheaper Chinese EVs are blocked from the US market, American consumers are denied the option of purchasing affordable EVs.
These delaying tactics not only discourage the adoption of EVs but impede progress towards a sustainable green economy. Rather than barring Chinese EVs from the US market, the US should consider welcoming them to transform the country’s EV ecosystem.
Permitting the sale of certain affordable and reliable Chinese EVs could be an effective strategy to accelerate EV adoption in the US. Politics aside, most Americans appreciate good deals. The quality of Chinese cars has significantly improved in the last decade, and BYD EVs such as the Atto 3 SUV – which received a five-star safety rating from the European New Car Assessment Programme in 2022 – are good deals.
Also, challenging the US auto industry will compel GM, Ford and others to innovate or perish. Rather than discourage its entry, the Biden administration could invite BYD to establish a factory in the US to manufacture certain models such as the Atto 3. It’s worth noting that BYD has manufactured electric buses in Lancaster, California, since 2013.
Apple cancels work on electric car, moves team to AI project
Apple cancels work on electric car, moves team to AI project
In addition, Vietnam’s VinFast is building a factory to produce different models of cars in North Carolina. Having more foreign brands manufacture their cars in the US would create competition and more manufacturing jobs in the US.
Forging partnerships with Chinese EV firms could foster innovation in the US. Establishing joint ventures with some Chinese firms could facilitate mutual learning. While it’s true that the Chinese have learned a lot from Americans, it’s equally possible for Americans to learn from the Chinese, especially in terms of developing an ecosystem for EVs.
Only a few Chinese EV firms have managed to survive in the competitive Chinese market. The US should learn from this by encouraging more firms to enter the market. Letting the market decide the winners aligns with the American spirit.
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Chinese EV maker BYD launches electric cars in Indonesia
Chinese EV maker BYD launches electric cars in Indonesia
BYD’s success can be attributed to its vertical integration strategy. It develops its proprietary lithium iron phosphate Blade batteries, which are safer, cheaper and more durable than conventional lithium-ion batteries. Additionally, BYD has an in-house unit to develop chips for its EVs.
By integrating all these in-house R&D capabilities, BYD has greater control over the cost, quality, speed of development and supply of key components. While getting US carmakers to become vertically integrated again might not be practical, encouraging them to develop a vertically integrated EV supply chain is essential.
If you can’t beat them, join them. The US could collaborate with China on areas of mutual interest, such as setting global standards, sharing best practices and addressing environmental challenges related to EVs. By doing so, the US could enhance its own competitiveness and innovation in the global EV market while reducing both its dependence on fossil fuels and greenhouse gas emissions.
Christopher Tang is a distinguished professor at the UCLA Anderson School of Management
