The introduction of cheap Chinese autos – which are so inexpensive because they are backed with the power and funding of the Chinese government – to the American market could end up being an extinction-level event for the U.S. auto sector, whose centrality in the national economy is unimpeachable.

The U.S. auto sector accounts for 3% of America’s GDP. It is annually responsible for tens of billions of dollars of annual research and development spending. It supports an entire ecosystem of manufacturers, from steelmaking to semiconductor fabrication. And for nearly a century, it has provided reliable, well-compensated employment for millions of American workers of various levels of educational attainment, making it a pillar of the American middle class. As such, the U.S. auto industry’s health has been the years-long focus of U.S. trade policy, and a more recent focus of U.S. industrial policy. This includes longstanding tariffs on imported light trucks, and more recent rules of origin (ROO) content requirements for vehicle imports from Mexico and Canada, as well as clean vehicle consumer tax credits that reward domestic production as U.S. automakers undertake an industry-wide pivot to the manufacture of EVs.

The U.S. auto sector and its extensive domestic supply chain, however, face a growing threat from Chinese competitors, buoyed by the Chinese state. While direct imports of Made in China automobiles have until now been extremely limited, China’s auto sector is hardly the uncompetitive laggard of decades past. Thanks to the Chinese Communist Party’s (CCP) industrial planning and generous assistance that began in the wake of the 2009 financial crisis, its state-owned and state-supported manufacturers are poised to dominate the burgeoning global EV market. China is estimated to have spent tens of billions of dollars to create an auto sector ready to take advantage of the clean energy shift, with support including tax breaks, favorable lines of credit, land use agreements, extremely limited import competition, and often direct subsidization. Chinese automakers have also benefited from mandatory joint ventures with and forced technology transfers from foreign firms seeking to gain access to the vast Chinese auto market. And, most egregiously, they benefit from the use of forced labor in their supply chains.

The state support has paid off. The Chinese auto industry’s growth has been exponential. The country became the world’s leading auto exporter in 2023, selling cars in Europe, Australia, Africa, Mexico and Southeast Asia, and Chinese automakers lead the world in EV production and sales by wide margins. China’s technological lead and its extensive supply chains, particularly for critical battery raw materials and components, are deep and secure because of its defined and deliberate industrial policies. Beijing has prioritized reducing dependencies on other countries, which in turn makes the world increasingly dependent on its own supply chains.

The CCP’s objective is no secret: Global market dominance, made explicit in economic blueprints like Made In China 2025 and China’s most recent Five Year Plan. And the results of China’s industrial bets – mammoth entities like BYD, SAIC Motor and battery maker CATL – are this effort’s champions. They are expanding rapidly, without consideration to supply and demand and basic market forces, so much that the Chinese auto sector is estimated to have a production overcapacity of millions of vehicles per year. That overcapacity is now facing outward, in search of new markets to soak up the largesse.

China’s automakers currently face significant barriers to entry into some western markets, including the United States. The European Union in 2023 began an investigation into the raft of subsidies that underpin Chinese auto exports’ competitiveness, while U.S. tariffs have successfully kept these cars, electric or otherwise, off American highways.

But Chinese automakers are not idle. BYD, which became the world’s largest EV manufacturer in 2023, is building a factory in the heart of the European Union and is among half a dozen Chinese companies preparing to manufacture in Thailand, thereby gaining access to nearby markets through regional trade pacts.

More alarming, however, are Chinese firms’ heavy spending on plants in Mexico, through which they can access the United States by way of the more favorable tariffs under the United States-Mexico-Canada Agreement (USMCA). This strategy is, in effect, an effort to gain backdoor access to American consumers by circumventing existing policies that are keeping China’s autos out of the U.S. market.

This is an auto industry backed by the Chinese state. It has invested heavily in foreign markets in order to access more of them. And there is cause for alarm that Chinese vehicles and parts will only increase their access to the U.S. market, overcoming existing tariffs and evading existing trade enforcement measures, to directly challenge domestic automakers and threaten the jobs of millions of American manufacturing workers.

The United States must adopt a proactive and evolving strategy to stymie the CCP’s penetration. Washington should raise tariffs further on Made in China vehicles, tighten and fully enforce the USMCA’s ROO so they are not allowed to leak in, and exclude from the pact’s preferential treatment components and vehicles made by companies headquartered in non-market economies like China. Washington must strictly enforce its own industrial policies, like the clean vehicle tax credits included in the Inflation Reduction Act, so that upstream content and raw materials from China do not benefit. Washington also must fully implement and enforce the Uyghur Forced Labor Prevention Act to keep goods and inputs produced in the Chinese police state of Xinjiang and by other oppressed minority ethnic groups out of the U.S. market, so that none of this content reaches American consumers.

The threat posed to the American auto industry by heavily subsidized Chinese imports is significant, and the level of its severity will depend greatly on how federal policymakers respond to it. A dedicated and concerted effort to turn those imports back requires greatly strengthened trade enforcement and fully implementing existing domestic industrial policies. This effort should be undertaken immediately; there is no time to lose.

To read the introduction and takeaways as it is posted on Alliance for American Manufacturing’s website, click here.

To read the full report published by Alliance for American Manufacturing, click here.

The post On a Collision Course: China’s Existential Threat to America’s Auto Industry and its Route Through Mexico appeared first on WITA.

Over the past two decades, the United States has pursued a similar—albeit less generous—approach. For example, the “qualified plug-in electric drive motor vehicle credit,” which resulted from legislation first established by the Energy Improvement and Extension Act of 2008, offers up to $7,500 in financial relief for going electric. Although the recently passed Inflation Reduction Act of 2022 has changed the qualification criteria for the credit (and changed the name of the program), the premise remains the same: if you go electric, Uncle Sam will support you.

It’s a nice idea. Electric cars are less polluting than gasoline autos. Less pollution means cleaner air, and cleaner air makes for a healthier planet. So why not use public funds to back EVs?

In a new study, the Breakthrough Institute’s Ashley Nunes, along with two co-authors, scrutinizes the economic efficiency of such subsidies. Emissions reductions are important, of course, but what matters even more (particularly as the national debt sits in the trillions of dollars), is how much these vehicles are driven and how often EV batteries must be replaced. Both factors influence how much emissions are reduced for each dollar of government spending. Nunes’s work finds that:

• Offering blanket EV subsidies can be an economically inefficient means of reducing emissions.
• Replacing an EV’s battery detracts from the vehicle’s emissions advantage.
• Cleaning up the national electric grid only does so much to make EVs less polluting on a per dollar basis.

None of these findings imply that EV subsidies are a universally bad idea. In fact, subsidies can maximize emissions reductions per dollar spent under specific conditions. Namely, when subsidies are targeted at high utilization vehicles (e.g., taxis and single-vehicle households), the expenditures are far more likely to reduce both emissions and produce net financial benefits. Offering subsidies for those who drive high utilization vehicles has particular significance for communities of color who are disproportionally represented in the taxi and mobility-on-demand industry.

As Congress debates whether EV subsidies should endure and, if so, for how long, Nunes’s study highlights the need to ensure these programs are targeted in ways that do the most good. His findings suggest that will mean moving away from universal subsidies for anyone interested in buying an EV and limiting subsidies to those who use EVs enough to realize the vehicle’s emissions advantage. Moreover, given that those who drive high utilization vehicles also have lower average incomes, offering EV subsidies as refunds, rather than nonrefundable tax credits, likely promotes greater EV adoption among the households that would maximize EVs’ emissions benefits.

To read the full summary, please click here.

To read the full original report, please click here.

Ashley Nunes is the Director of Federal Policy, Climate and Energy, at the Breakthrough Institute. His work examines the economics of clean technology adoption, with a focus on socioeconomic impact assessment. Previously a research scientist at the Massachusetts Institute of Technology, Ashley holds academic appointments in the Department of Economics, at Harvard College, and in the Labor and Worklife Program, at Harvard Law School.

The post How to Make EV Subsidies Work appeared first on WITA.

Official statistics for some of the world’s major trading economies further indicate the extent of the downturn in international trade caused by the COVID-19 pandemic. During 2020, none of the major economies has been spared.

China’s trade patterns have diverged from other economies. After falling in the early months of the pandemic, Chinese exports stabilized in Q2 2020 and rebounded strongly in Q3 2020, with year-over-year growth rates of almost 10 per cent. Overall, the level of Chinese exports for the first nine months of 2020 was comparable to that of 2019 over the same period. On the import side, the Chinese demand for imported products recovered following a decline in Q2 2020. Contrary to other major economies, Chinese imports stabilized in July and August then grew substantially in September.

Regional trade trends

The sharp and widespread decline in international trade in Q2 2020 has been similar for developing and developed countries. However, trade in developed countries appears to have fallen marginally faster, both in relation to imports and exports. Trade among developing countries (South-South) has been relatively more resilient with a decline of about 16 per cent in Q2 followed by a decline by 8 per cent in July.

No region has been spared from the decline in international trade in Q2 2020. However, trade in East Asia appears to have fared relatively better than in other regions. This trend is even more evident for the month of July. On the other hand, the sharpest decline has been for the West and South Asia region, where imports have dropped by 35 per cent, and exports by 41 per cent. As of July, the fall in trade remains significant in most regions.

Global trade at the sectoral level

Economic disruptions brought about by COVID-19 have affected some sectors significantly more than others. In Q2 2020, the value of global trade in the automotive and energy sectors was about half of what it was in Q2 2019. Trade also declined significantly in chemicals, machineries, metals and ores, and precision instruments. On the other hand, imports increased in office machinery and textiles and apparel. Such increases are linked to the COVID-19 pandemic as these sectors include home office equipment and protective equipment such as masks.

The data for July and August 2020 indicates similar patterns. The value of international trade in the energy and in the automotive sectors was still substantially below its levels of 2019. On the other hand, increases in demand of home office equipment and personal protective gear resulted in positive growth rates for trade in the communication equipment, office machineries, and textiles and apparel sectors.

To download the full report, please click here.

The post Global Trade Update appeared first on WITA.

autocongressional report

The post Section 232 Auto Investigation appeared first on WITA.

While Trump shows other countries nothing but his tariff stick, China has been offering carrots.  Beijing has repeatedly cut its duties on imports from America’s commercial rivals, including Canada, Japan, and Germany.

Trump’s provocations and China’s two-pronged response mean American companies and workers now are at a considerable cost disadvantage relative to both Chinese firms and firms in third countries. The result is one more eerie parallel to the conditions US exporters faced in the 1930s.

Another important implication of China’s action is that Americans are likely suffering more than President Trump thinks due to his trade war. Inflicting such punishment on Americans may be one factor motivating China. A separate motivation may be that it is trying to minimize the harm to its own economy by importing vital goods at better prices from other parts of the world.

CHINESE TARIFFS THROUGHOUT THE TRADE WAR

China has increased tariffs on US exports to an average 20.7 percent. But also striking for American farmers, companies, and workers is that China has reduced tariffs on competing products imported from everyone else to an average of only 6.7 percent (figure 1).

As recently as early 2018, firms in both the United States and the rest of the world competed in China with each other on a level playing field, facing an average Chinese tariff of 8.0 percent. Figure 1 summarizes how the Chinese tariff differential has arisen over the course of Trump’s trade war.

On April 2, 2018, China retaliated against US exports in response to Trump imposing tariffs on steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962. Without waiting for authorization from the World Trade Organization (WTO), China imposed new duties on $3.0 billion of US exports. Like all of the retaliatory duties to date, the April tariffs were imposed in addition to the normally applied most favored nation (MFN) tariffs. As a result, China’s average tariff on US exports increased to 8.4 percent.

Later in 2018, China’s retaliation against $110 billion of US exports increased the average Chinese tariff on US-based production ultimately to 18.3 percent. This hike came in three waves, and each was an immediate response to Trump imposing a round of tariffs on China under Section 301 of the Trade Act of 1974. China’s retaliatory tariffs hit $34 billion and $16 billion of US exports on July 6 and August 23, respectively. More duties covered an additional $60 billion of US exports on September 24.

Yet, throughout 2018, China also lowered its tariffs on imports from all other WTO members. The headline involved China reducing its tariff on auto imports on July 1. But on the same day, China also cut tariffs on 1,449 other consumer goods like farm and fish products, cosmetics, clothing, and home appliances. On November 1 it reduced duties on 1,585 industrial products, including chemicals and machines.

By then, China had lowered its tariffs on imports from the rest of the world from 8.0 to 6.7 percent. Consumers in China now had another reason to switch away from American suppliers.

[To view the original research, click here]

Copyright© 2019 Peterson Institute for International Economics. All rights reserved.

The post Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else. appeared first on WITA.