“A 100% tariff will probably be enough to keep essentially all made-in-China EVs out of the US.” – economics blogger Noah Smith
President Joe Biden today erected a very large fence around American clean energy manufacturing. Tariffs on imports from China now range from 25 per cent on steel to 100 per cent on electric vehicles. Will this move supercharge budding US industries or make them less competitive? Either way, the White House officially entered the global clean energy arms race that China began 25 years ago. Is Canada likely to sign up?
While the rest of the world was outsourcing its manufacturing to China beginning in the 1980s, China’s communist government was creating a sophisticated approach to manufacturing the energy technologies of the future, according to Canadian industrial policy expert Bentley Allan, who teaches at Johns Hopkins University. The graphic above illustrates China’s dominance of solar manufacturing.
“China’s industrial strategy targeted not just assembly but the creation of an entire digital mobility ecosystem,” he tweeted about the country’s aggressive electric transportation sector. “It is integrated vertically into supply chains and horizontally into multiple technology systems.”
What this means in simple terms is that China invested heavily in developing and scaling up the core clean energy technologies: wind, solar, batteries, EVs, heat pumps, and electrolyzers (for making hydrogen). At the same time, its governments aggressively supported growing all the companies that make the inputs into those technologies. Furthermore, the same approach was used to grow related industries, like semi-conductor chip manufacturing.
Consequently, China has emerged from the COVID-19 pandemic as a clean energy manufacturing colossus, much the same as the United States was the premier industrial power after World War Two.
The Americans, not surprisingly, don’t view China this way. The US says China is dumping (selling goods for less than the cost of production).
“China’s unfair trade practices concerning technology transfer, intellectual property, and innovation are threatening American businesses and workers,” Biden’s tariff backgrounder complained. “China is also flooding global markets with artificially low-priced exports.”
China says the US is scared of competition, as I pointed out in a recent column.
“Behind the formulation of the ‘China’s overcapacity threat theory’ is nothing more than to curb China’s industrial upgrading and development, and to protect the vested interests of certain Western countries in the global industrial and supply chains by unfair means,” says state-owned Xinhua News Agency,
“Its essence is to maintain monopoly status and protect backward production capacity.”
Ironically, this could happen, says Canadian economist Chris Bataille: “The US has to use this moment to learn how to become as good or better than the Chinese at making EVs, not trying to stop the clock on time.”
Ford and GM, for example, have recently stumbled. The new Chevy Blazer suffered from software problems and was recalled. After a promising start, production of the popular F-150 Lightning pickup was scaled back in the face of flagging consumer interest.
BloombergNEF analyst Corey Cantor recently told me that he’s not as worried about the legacy automakers. Pivoting to electric while still making internal combustion engine vehicles is no easy feat, he argues.
“The challenge for all [legacy companies] is that platforms and investment and scale-up takes a while,” he said. “With the exception of maybe [Chinese EV maker] BYD, you haven’t seen a legacy automaker go from living in the land of gas cars to fully immersed in the electric vehicle space.”
Biden has given GM and Ford a breather. American economics blogger Noah Smith suggests that they not waste the opportunity. While Biden’s new rules keep out China-made EVs, Chinese EV makers can set up shop factories outside the US and export to the huge American market from there.
“So if BYD or other Chinese carmakers put their factories in America — or in Mexico, or Canada, or any place other than China — they will still be able to sell EVs to the U.S. without getting hit by Biden’s new tariff,” he writes.
BYD is already eyeing a Mexican plant. Other Chinese firms are certain to do the same.
What will Canada do?
Thus far, Canada is courting the usual suspects to build plants. Subsidies to VW, Stellantis-LGES, and Britain’s Northvolt are estimated by Parliamentary Budget Officer Yves Giroux to cost the federal and provincial governments $43.6 billion, which includes foregone corporate income tax revenues. Honda’s new $15 billion EV factory will receive up to $5 billion of government subsidies.
This is money well spent. As I argued in this column (Huge battery plant subsidies are price Canada pays for lagging in clean energy industry), Canada’s choices are to pay to build clean energy industries, like China, or to buy said industries like the Americans. Or, I suppose, Canada can simply sit out this industrial revolution, which is mostly what it is doing, with a few examples like the aforementioned investments.
The odds that Ottawa welcomes China’s EV firms with open arms (and wallet) are not good, says CD Howe Institute senior fellow and international lawyer Lawrence Herman. “If the US goes the tariff route, Canada will certainly have to follow,” he wrote in February.
Keep an eye on highly influential industry lobbyist Flavio Volpe, head of the Automotive Parts Manufacturers Association. He has been warning of the Chinese threat for months, including on Episode 261 of the Energi Talks podcast (see below). Based on my conversation with him, my bet is that Canada does follow with tariffs.
But Allan has a warning for the United States and, by extension, Canada. Simply protecting North American firms with tariffs is not nearly enough. Both countries need to rethink how they do clean energy industrial policy.
“To compete with [China] the US will need an ambitious public-private partnership that brings together the government and firms into a collaborative search for industrial advancement,” he said.
“US has the beginnings of such partnerships in the hydrogen hubs and in the batteries supply chain, but it’s going to need to be supercharged for the whole vehicle ecosystem.”
There’s plenty of public funding and support available in both countries. That’s not the problem. But policymakers on either side of the border are making smart use of those funds.
China is highly strategic. Its leaders view clean energy industry as the means by which China grows geopolitical power to rival that of the United States. They are pursuing that goal with incredible vigour, including a whole-of-economy approach that is not appreciated in the West, particularly Canada.
Canadian incumbents, like the Alberta-based oil and gas industry, dominate the national energy conversation, siphoning off funds that are better spent on the energy of the future.
Canada has been a hewer of wood and drawer of water its entire existence. If we’re lucky, the US will require enough modern wood and water to maintain us in the style to which we have become accustomed. The best we can hope for at this point is that the US metropolis succeeds and the Canadian hinterland once again is a free rider on the American coattails.
Be the first to comment