European Union countervailing duties (CVD) on certain types of electric vehicles (EVs) from China went into effect provisionally on 5 July. The duties are being imposed based on a European Commission finding that China’s EV subsidies represent potential injury to EU industry as it transitions away from the internal combustion engine. EU imports of EVs from China are surging, but still represent a small share of EU car sales. Most imports from China originate from joint ventures of EU and Chinese manufacturers, and from Tesla, which is the largest importer. 

In the meantime, China is starting its own investigation into some EU exports, such as cognac. The EU has initiated consultations with the government of China to resolve the dispute, as it must do under the World Trade Organisation Subsidies and Countervailing Measures Agreement. Under WTO rules, China cannot retaliate unless it challenges the EU measure and a dispute settlement panel rules in its favour.

The CVDs range from 17.4 percent to 37.6 percent of the import price, on top of the EU’s 10 percent tariff on imported vehicles. They represent a formidable barrier in an industry where average profit margins are typically in the range of 4 percent to 8 percent. The CVDs will affect all EVs imported from China regardless of whether the original equipment manufacturer (OEM) is Chinese, American or European. Here, we offer an economic and political (as opposed to legal) analysis of the CVDs.

Methodology behind the CVDs

The Commission methodology for identifying subsidies and countervailing them is well established. Reflecting the importance of the EV sector, the regulation implementing the CVDs is the result of a comprehensive investigation, encompassing extensive consultations with Chinese firms, EU firms, the Chinese government and Chinese trade associations. Identifying subsidisation in China’s opaque system is challenging, especially since, as the regulation documents repeatedly, the Chinese government and several of the Chinese entities covered were uncooperative. 

The regulation details how the Chinese government has prioritised the EV value chain (materials, batteries, vehicles) since 2010. Of course, the EU and the US are also prioritising EVs in their quest for decarbonisation. However, the Chinese state and Communist Party hold large sway over the Chinese economy, including state-owned and private corporations and powerful industry associations. Thus, the Chinese government adopts a ‘whole of society’ deployment of plans and instruments, including subsidies, as part of its industrial policy.

To determine whether imports from China are subsidised, the Commission chose a sample of three Chinese OEMs to conduct its investigation, namely BYD, Geely and SAIC. It set the CVD for all other cooperating firms at the average of the three. Curiously, Tesla, the largest exporter from China to the EU, was not chosen and has asked for a separate investigation.   

We assess how the four main sources of countervailable duties –below market supply, preferential financing, grants and land usage – are calculated. Though it is evident that that various forms of non-market incentives in the Chinese EV sector exist, they may be significantly less than suggested by the Commission’s methodology. 

• Below market provision of batteries and their inputs. The reference used to compute the subsidy are the differences between the export and domestic prices of batteries (for SAIC and Geely) and of lithium iron phosphate (a key battery input, relevant for BYD which produces its own batteries). But many exporting firms price to market (Parker, 2016), and the fact that the export price of these inputs is higher than the domestic price is not necessarily because of subsidies. The markets for EVs, batteries and minerals in China are known to be exceptionally competitive and in a price war, while in the EU car prices and consumer purchasing power are much higher.

• Preferential financing. Using its standard methods to try to establish a market-based rate as a counterfactual to the preferential financing received, the Commission assigned a credit rating of B to the three sampled Chinese firms and attributed a correspondingly higher spread compared to prevailing market rates to their borrowing and equity. The B rating, far below investment grade, is extremely low for large, modestly profitable firms, such as the sampled Chinese OEMs. For example, almost no firm in the S&P 500 is rated B or below. Moreover, credit ratings are available for Geely from the major international agencies, and they are higher than B.

• Preferential financing. Using its standard methods to try to establish a market-based rate as a counterfactual to the preferential financing received, the Commission assigned a credit rating of B to the three sampled Chinese firms and attributed a correspondingly higher spread compared to prevailing market rates to their borrowing and equity. The B rating, far below investment grade, is extremely low for large, modestly profitable firms, such as the sampled Chinese OEMs. For example, almost no firm in the S&P 500 is rated B or below. Moreover, credit ratings are available for Geely from the major international agencies, and they are higher than B.

• Grants. The government of China provides a subsidy to manufacturers for each vehicle sold. In economic terms, both consumer and producer subsidies have the effect of increasing the incentive to produce. However, the Chinese subsidy, unlike the EU subsidy, is not available to importers and the Commission is correct in arguing that it is countervailable for that reason. Still, the scheme was discontinued as of December 2022, and even though some benefits continue to accrue to Chinese producers because payments are staggered, its distortive effects are fading by now. The Commission Regulation states that some Chinese provinces are introducing their own schemes but does not provide evidence of this.

• Land use. Land in China is owned by the state. Provinces subsidise EV producers by allowing them use of land at below market price. The Commission uses the price of land use – rent – in Taiwan as the reference point. However, Taiwan is far more densely populated than China and its income per capita is three times higher. Land prices tend to be correlated with income and density, so the reference price appears too high.

The risk of injury

Adopting a kind of ‘infant industry’ argument normally associated with developing countries, the Commission Regulation argues that the EU EV sector is too young to withstand Chinese competition. But while some of the key success factors in EVs (eg battery technology) are different from the combustion-engine vehicle sector, the value chains of the two sectors have many common elements. This is most evident in the popularity of various types of hybrid vehicles. It is well known, of course, that the EU’s OEMs are among the world’s most successful.

To make a historical analogy, in the 1970s and 1980s, Japanese and then Korean OEMs appeared to threaten the European automotive industry, but they became established in the EU market only over decades and after large investments. European OEMs adjusted to them by greatly increasing productivity and quality and by adding innovative features. Chinese OEMs still have a minuscule share of the EU automobile market, while EU OEMs are in the process of rapidly developing their own lower priced EVs and investing in battery technology and manufacture, often in joint ventures with Chinese producers.

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In addition to the three EV manufacturers mentioned, other EV producers in China that cooperated with the EU investigators received a weighted average duty of 21 percent. All other producers that did not cooperate were hit with the top 38.1 percent. These anti-subsidy duties come on top of the European Union’s regular 10 percent tariff on EV imports from China.

These new EU anti-subsidy tariffs are on par with those imposed following previous EU anti-subsidy investigations concerning imported goods from China. Rhodium Group estimates that collaborating Chinese firms in earlier investigations have faced new duties of an average of 19.7 percent. Meanwhile, in earlier EU anti-subsidy investigations, the exports of non-cooperating firms, such as coated organic steel products, received new duties of 44.7 percent, while Chinese exported truck and bus tires to the European Union in some cases were subjected to new duties of over 50 percent.

Imposing the lowest tariff on BYD, a leading firm that is opening a production facility inside the European Union, gives the company an advantage in the EU market. Its stock price has predictably benefitted. Similar circumstances pertain to Geely, which also has EU production facilities and enjoyed a relatively low additional tariff. By contrast, SAIC, which is the largest Chinese owned EV exporter to the European Union via its MG brand, has no current or planned EU production location. Its tariff will probably encourage it to locate EV production inside the European Union. As discussed in a previous blog, these circumstances add up to something functionally akin to Japan setting up auto production in the United States to avoid tariffs threatened in the 1980s.

Assuming that all EU-owned EV producers in China, as well as Tesla, cooperated with the EU investigation, they too face relatively low additional tariffs of 21 percent for EV exports to the European Union. And as researched by Rhodium, some China-based EV producers will suffer commercially from tariffs at this level. Rhodium estimated approximate differentials in profit rates for sales of EVs produced in China in both the Chinese and German EV markets, relying on available EV model manufacturer suggested retail prices. China-based EV producers like BMW, Tesla, and probably other foreign EV producers operating in China, as well as the Chinese company that makes the Nio, will face significant challenges for their future export profitability relative to their sales in China. The 21 percent tariff exceeds these firms’ estimated profit margin for sales in the German market, making exports from China unprofitable. However, these producers, of which most have EU-located production facilities, now instead have a commercial incentive to relocate EV production to Europe. It should here be noted, though, that the Commission in its announcement made clear that Tesla “may receive an individually calculated duty rate” later, and hence possibly face lower future commercial headwinds from these tariffs.

All told, the Commission has acted carefully after mounting a substantial anti-subsidy investigation, involving over 100 location visits and dozens of Commission staff, as discussed in an earlier blog post. New tariffs signal the political willingness—within World Trade Organization (WTO) rules—to confront Chinese EV trade practices while providing incentives for Chinese EV producers to locate production inside the European Union. And applying the lowest tariffs on BYD, the EV market leader in China and clearly the biggest commercial threat to EU car companies, points to the Commission following the facts of the case rather than being guided by crude protectionist instincts. This approach could set the stage for further cooperation in the future.

The Commission’s tariff announcement was for “provisional tariffs” on EV exports from China to the European Union, while “definitive tariffs” must now be set within four months. Definitive anti-subsidy tariffs, however, must be approved by a majority of the EU member states in the EU Council. Some member states may try to get the Commission to revoke or alter the proposed tariff levels to promote smoother trade relations with China in the auto sector. The final political review of the tariffs will also provide individual EV producers in China with the opportunity to seek their own (like Tesla) individually calculated (lower) definitive duty rate.

But the Commission’s cautious and fact-driven approach fostering more investment in Europe will make it harder for EU member states to challenge its decision. Perhaps the scope of the application of the top 38.1 percent tariff to non-cooperative firms can be negotiated at the margin, but it seems unlikely that the lower tariffs around the 20 percent level will be altered.

Will China respond to the European Union’s careful approach? Some retaliatory action against specifically targeted EU exports to China may be inevitable. These actions could affect EU agricultural imports as well as internal combustion engine (ICE) vehicles with large engines, or even aircraft, although given the global duopoly of Airbus and Boeing, the European Union is unlikely to punish the former to the benefit of the latter. China will also not want to antagonize German and other European car manufacturers that are among its allies in the fight against these new EV tariffs. Targeting the EU car industry for retaliation might be self-destructive. Various politically sensitive agricultural products hence seem a more likely trade outcome. China has now initiated an investigation into EU exports of pork and pork by-products to China.

Obviously, China has various other political and financial tools to retaliate. It could delay or redirect planned investments selectively to European countries backing the tariffs. Beijing is likely to take its time before responding to measure various countries’ reactions.

For China, the commercial bottom line is that the European market is important, especially because the US market has been closed off by the Biden administration’s tariffs, while Turkey (40 percent) and Brazil (35 percent by 2026) have recently introduced new EV tariffs that are even higher than EU levels. Beijing has every incentive to avoid an escalatory trade war with the European Union in the EV sector.

Finally, because the European Union followed WTO rules in its investigation of Chinese subsidies, it is signaling that it is not following the “rogue” path of the Biden administration justifying its EV tariff action on national security grounds. So perhaps Beijing will hold its fire also for political reasons.

The Chinese government might take this dispute in the EV sector to the WTO, perhaps as part of its Multi-Party Interim Appeal Arbitration Arrangement, to which both China and the European Union are parties. Such a move would help China to be seen as playing by the rules, unlike the United States, and it could even signal a potential settlement of the EU-China dispute on EVs.

To read the full blog piece as published by the Peterson Institute for International Economics, click here.

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Most of these products are already subject to high duties or extensive trade-remedy measures, so the amount of imports from China covered by the new tariffs, including EVs, is small at $18 billion. In fact, the US imports essentially no EVs from China. However, it is a sector of great concern to the European Union, which in October 2023 opened an anti-subsidy investigation into Chinese EVs, which may trigger countervailing duties. The US move may therefore have implications for the pending EU decision on countervailing duties on China.

An extraordinary decision, driven by domestic politics

The US decision on Chinese EVs is extraordinary in four respects:

• First, the 100 percent tariff is prohibitive. Ostensibly justified by China’s own subsidies, it would imply that half of the cost of Chinese EVs is paid for by government funds, far beyond the range of other estimates.
• Second, unlike previous protection episodes, such as when the US was responding to the threat of Japanese car manufacturers, there are virtually no Chinese car imports today, and US manufacturers, especially General Motors, already have large footprints in China, whereas they were marginal in Japan. Though GM sales in China have declined recently, for more than a decade until 2023, China was a profit engine and the company’s top sales market.
• Third, the EV tariffs depart from the US emphasis on national security to adopt anti-China measures (unless one believes that EVs are meandering Chinese spies), suggesting that all sectors are now in play.
• Fourth, the measure runs counter to the Biden Administration’s green transition goals, which include large tax breaks for EVs, intended to lower the cost for consumers of green alternatives.

The decision on EVs and its timing are strictly political and reflect the extraordinary power of the United Auto Workers union in swing states in the run-up to the US presidential election. The decision is nevertheless a surprise in the light of recent efforts at China-US rapprochement, including exchanges at senior military level, and talks on AI and climate change. China will be affronted and many China-dependent US firms, which had hoped for tariff reductions, will be disappointed. The decision is, however, consistent with US Trade Representative Katherine Tai’s “Worker Centric” trade policy which claims to place workers’ interests ahead of those of firms.

Global impact

The immediate economic impact of the tariffs will be minimal at the macro level, whether on quantities, prices, or exchange rates; $18 billion is tiny relative to the size of the two economies, and even the $500 billion that China exported to the US in 2023. Even so, they will hurt some Chinese companies and US importers. The effect on US consumers and prices will be minimal and take the form of lost future opportunities rather than immediate cost, especially in relation to EVs.

China’s retaliation (it always retaliates) will be proportionate and limited. If the past is a guide, retaliation will affect mainly some US agricultural exports, which can be sourced easily elsewhere, and US exporters will be compensated for their losses in China. But even if the Chinese government does not retaliate against US car exports and investments in China (which it continues to court), the Chinese consumer is unlikely to respond well to America’s extreme measure on EVs when he or she chooses the next car to buy.

Perhaps more worrying is the further escalation of tensions with China that the tariffs represent – a dangerous trend with many repercussions. It may undermine any Chinese willingness to play a moderating influence on the war in Ukraine. The tariffs also quash any notion that the US intends to abide by World Trade Organisation rules. These two considerations, by themselves, increase policy uncertainty globally and are bound to have a dampening effect on international trade and investment.

The US approach diverges from that of the EU, which is building a case for countervailing duties under WTO rules. Although the outcome may also be new tariffs, in the EU there will have been due process based on evidence. But politically, prohibitive US tariffs place enormous pressure on the EU to apply its own. Even though there is no immediate threat of trade diversion, EU firms such as Stellantis, and unions that lobby for tariffs, will argue that Chinese EV exporters, cut off from the US market, will focus on the huge EU market instead. Though EU firms are still the largest exporters of EVs from China to the EU by a wide margin, the share of Chinese indigenous manufacturers is rising rapidly.

The adverse effect on trade relations of the new tariffs will extend beyond trade under the WTO to encompass trade under regional agreements. This is because US politicians are determined to avoid China-sourced products coming in through the back door – strict rules of origin are already there to prevent that – and to prevent the products of Chinese-invested companies from entering. In their view, even if batteries, EVs and semiconductors are manufactured by a Chinese-invested company in a US trading partner, and are entitled to tariff-free treatment under a regional agreement, they should be discouraged. This also applies to Chinese companies producing in the US. Mexico and Morocco are two examples of US regional trade agreement (RTA) partners that host Chinese manufacturers of batteries and soon of EVs, where frictions are bound to rise.

Even though the EU remains more open to Chinese producers on its territory than the US (eg BYD in Hungary, CATL in Germany and Hungary), it will face a similar challenge with its RTA partners if, as expected, it applies its own tariffs on Chinese EVs. These tensions among parties to RTAs, together with China’s retaliation against EU and US EV tariffs, is likely to mark this episode as a classic example of protectionist contagion.

A separation of Chinese and US value chains?

The EV value chain is destined to increase greatly in importance to mitigate climate change. From the standpoint of US industrial policy, a big question raised by the prohibitive tariffs on Chinese EVs and by the accompanying resistance against hosting Chinese producers is whether a US EV/battery value chain entirely separate from China is sustainable and realistic. The US is undoubtedly capable of developing such a chain, but can it do so at reasonable cost and without falling behind in quality and efficiency? On the answer to this question rests the calculation of long-term consumer losses from the tariffs against the counterfactual, the speed of the US green transition, the burden on government finance from the possibility of more subsidies, and even the solvency of US car companies.

Even a cursory examination of China’s current competitive advantage in EVs suggests that the answer to the question is no. China produces almost twice as many EVs as the EU and US combined, the share of EVs in new car registrations is rising rapidly, and it has reportedly moved ahead at the combined quality/price/technology frontier. The latest BYD Model, the Seagull, sells in China at slightly less than $10,000, and has been highlighted as an illustration of China’s competitiveness. Tesla founder Elon Musk has been openly pessimistic about the West’s ability to compete with Chinese cars.

China’s cost advantage arises from a combination of scale, advanced and lower-cost battery technology, availability of IT and AI expertise, lower labour costs, and intense competition in the Chinese market, with dozens of domestic and foreign producers active. Central and provincial government subsidies still play a role, and their extent is what the EU investigation will evaluate. The only available and presumably reliable numbers on subsidies received are those declared by Chinese publicly traded companies such as BYD, and are small relative to turnover or value added.

China’s EV exports increased by over 60 percent in 2023 to reach 1.2 million units, directed mainly at Europe, Mexico and several emerging markets in Asia. Since the biggest Chinese EV manufacturers and their battery suppliers have developed distinctive assets (brand, technology and design), they are new able to set up manufacturing and distribution channels overseas, in markets including Thailand, Indonesia, Australia, Morocco, Mexico and Hungary. Chinese EV manufacturers are also rapidly gaining market share in China, where competitors are increasingly struggling.

As EVs become even more established worldwide, the scale advantage of the most successful Chinese producers over US-based producers will only increase, as will their capacity to target individual markets with customized products on a common platform. Finally, it is important to note that the largest US car companies, Ford and General Motors, are not in the best shape to compete in the intensifying EV market. Standard and Poor’s rates Ford’s and GM’s long-term debt at BB+ and BBB respectively, just below and just above investment-grade. The market capitalisations of BYD and Xiaomi, the two largest Chinese EV producers, are $86 billion and $62 billion respectively, while those of GM and Ford are both around $50 billion.

The EU’s strategy

Should the EU adjust its policies in the light of the new Biden tariffs, and if so, how? Note that since there will be no surge of Chinese EVs diverted from the US market, it is not a given that the EU needs to alter its course.

The EU’s trade strategy on EVs must pursue six main objectives: 1) a fair deal for EU manufacturers insofar as they are affected by China’s subsidies in excess of subsidies they receive at home, and one that is in line with WTO rules; 2) stand up for the interests of EU car exporters and manufacturers in China, which are also recipients of various subsidies; 3) the long-run health and competitiveness of the EU car industry; 4) protect the interests of consumers, especially those with low incomes, who would benefit greatly from cheaper cars; 5) ensure the speed of the green transition; 6) maintain a cooperative and constructive relationship with China for both economic and geopolitical reasons. To progress towards all six objectives simultaneously is a challenge, but can be done:

• The EU’s stated objective should be to arrive at competitive neutrality in the EV sector, enhancing and not preventing fair competition that will promote productivity growth and innovation. Accordingly, the countervailing duty margin on Chinese EVs should be computed objectively and realistically; it should be defined and documented in a way that is entirely robust to legal challenge at the WTO. It should also take account of subsidies at home to reduce the EU’s vulnerability to a Chinese counter: if the net subsidy is found to be zero, the countervailing duty margin should be zero, and the countervailing duty, if any, should be set at the minimum level consistent with the findings. The duty should be accompanied by a proposal to set up a China-EU working party with a mission to identify and monitor EV subsidies, and to reduce them with a view to eliminating the duty margin over a defined period.
• To ensure the long-term vibrancy and competitiveness of its car industry, to safeguard the interests of its consumers, to sustain the green transition, and to maintain good relations with China, the EU should adopt an open-door policy on Chinese inward investment in its EV and battery sectors, while insisting on continued fair treatment of its firms that have already established footholds in the Chinese market. The EU may need to prepare, ultimately, to confront US restrictions on China-invested cars produced in Europe, such as Geely-owned Volvos.
• It is possible that, once embarked on this course, the EU may nevertheless face an excessively rapid penetration of imported Chinese EVs sometime in the future. Should that happen, the EU may resort to a WTO-compatible safeguard measure. The advantage of the safeguard course is that the increase in tariffs would be time bound (three years). Safeguard tariffs must, however, apply to all imports, not only those from China.

Uri Dadush is a Non-resident fellow at Bruegel, based in Washington DC, and a Research Professor at the School of Public Policy at the University of Maryland where he teaches courses on trade policy and on macroeconomic analysis and policy.

To read the full analysis as published by the Bruegel, click here.

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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.

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As America steadily builds momentum to become an electric vehicle (EV) powerhouse in the next decade, outdated and rigorous supply chain constraints will see the country falling further behind China and the European Union by 2025, according to a report by the Coalition for a Prosperous America (CPA).

Countless supply chain issues are further dampening legacy car makers and the Biden Administration’s efforts to make 50% of all cars on American roads fully electric by 2030.

Last year marked a 65% jump or two-thirds increase in new EV passenger vehicles sold compared to 2021. Overall, electric cars accounted for 5.8% of all new cars sold across the country in 2022, a steady build-up from 3.1% the year before.

Considering how much the EV market has expanded, determining where it could lead in the coming years is a question of how industry leaders can resolve internal and widespread issues with native innovation and technology.

OVERCOMING THE LACK OF ACCESS TO ADEQUATE MATERIALS

At present, four key materials make up the majority of materials needed to compile lithium-ion batteries — lithium, nickel, cobalt, and copper. Overall these four ingredients make up roughly 50% of a battery’s cost.

These raw materials or raw earth make up several crucial components of electric car operations, including cathode chemistries across several levels, windings, and rotors in motors.

For successful rollout, essential materials would need to be more widely available, in higher volumes and at lower prices if automakers want to meet the industry’s and the government’s ambitious EV targets.

Matthew Hart, the spokesperson for the automotive advice site, Axlewise, comments how America’s newfound love and interest for electric vehicles have only further highlighted how far behind we have fallen in the EV race.

“However, as electric cars continue to become more affordable and accessible, new players are entering the market daily. This is creating both challenges and opportunities for existing manufacturers and consumers alike. Overall, it is clear that electric car prices will continue to rise over the next decade as demand continues to increase,” says Matthew.

To overcome the lack of access to materials, legacy automakers are considering venture deals with foreign manufacturers to help answer their need for supply and demand.

America’s biggest car producer, Ford, announced that it will enter a deal with China’s leading battery maker, CATL, for a $3.5 billion plant it wants to build in Michigan.

This would increase Ford’s footprint on the local EV market, but it allows them to leverage advanced battery makers through partnership, allowing them more adequate access to the components they need to electrify their vehicle lineups.

Instead of looking elsewhere for solutions, EV makers could further their partnership with one another, sharing available resources coming from domestic producers, increasing spending and support with countries that already have a Fair Trade Agreement with the U.S., and help build a more sustainable supply chain within the American EV industry.

Finding adequate materials, within the U.S. and the wider North American ecosystem could open up new possibilities for automakers. This might come with increased competition, as other local automakers begin to electrify their production lines, but it’s a solution that could be more sustainable in the long term for existing players in the supply chain.

THE BOTTOM LINE

It’s hard to conclude whether America’s longstanding love for legislation and politics could be its demise in the race to electrification. Changing supply chains requires adequate investment, but existing models of business and trade that could ensure long-term relationships, without disruption. American EV manufacturers will need to learn how to become more dependent on local sources from start to finish.

Walid Al-Hajj is the CEO of technium.ca and is passionate about starting and scaling businesses in Fintech, PropTech, Blockchain, and AI.

To read the full article, click here.

To read the full policy paper by Coalition for a Prosperous America, click here.

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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.

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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.

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