There’s No Easy Answer to Chinese EVs

Chinese electric vehicles—cheap, stylish, and high quality—should be a godsend to the Biden administration, whose two biggest priorities are reducing carbon emissions quickly enough to avert a climate catastrophe and reducing consumer prices quickly enough to avert an electoral catastrophe. Instead, the White House is going out of its way to keep Chinese EVs out of the U.S. What gives?

The key to understanding this seeming contradiction is something known as “the China shock.” American policy makers long considered free trade to be close to an unalloyed good. But, according to a hugely influential 2016 paper, the loosening of trade restrictions with China at the turn of the 21st century was a disaster for the American manufacturing workforce. Consumers got cheap toys and clothes, but more than 2 million workers lost their jobs, and factory towns across the country fell into ruin. Later research found that, in 2016, Donald Trump overperformed in counties that had been hit hardest by the China shock, helping him win key swing states such as Michigan, Wisconsin, and Pennsylvania.

Upon taking office, the Biden administration committed itself to making sure nothing like this would happen again. It kept in place many of Donald Trump’s tariffs on China and even introduced new trade restrictions of its own. Meanwhile, it pushed legislation through Congress that invested trillions of dollars to boost domestic manufacturing. For Biden, the transition to green energy represented a chance to bring good jobs back to the places that had been hurt the most by free trade.

Then China became an EV powerhouse overnight and made everything much more complicated. As recently as 2020, China produced very few electric vehicles and exported hardly any of them. Last year, more than 8 million EVs were sold in China, compared with 1.4 million in the U.S. The Chinese market has been driven mostly by a single brand, BYD, which recently surpassed Tesla to become the world’s largest producer of electric vehicles. BYD cars are well built, full of high-tech features, and dirt cheap. The least expensive EV available in America retails for about $30,000. BYD’s base model goes for less than $10,000 in China and, without tariffs, would probably sell for about $20,000 in the U.S., according to industry experts.  

This leaves the White House in a bind. A flood of ultracheap Chinese EVs would save Americans a ton of money at a time when people—voters—are enraged about high prices generally and car prices in particular. And it would accelerate the transition from gas-powered cars to EVs, drastically lowering emissions in the process. But it would also likely force American carmakers to close factories and lay off workers, destroying a crucial source of middle-class jobs in a prized American industry—one that just so happens to be concentrated in a handful of swing states. The U.S. could experience the China shock all over again. “It’s a Faustian bargain,” David Autor, an economist at MIT and one of the authors of the original China-shock paper, told me. “There are few things that would decarbonize the U.S. faster than $20,000 EVs. But there is probably nothing that would kill the U.S. auto industry faster, either.”

[Andrew Moseman: The inconvenient truth about electric vehicles]

The president has chosen which end of the bargain he’s willing to take. The Biden administration has left in place a 25 percent tariff on all Chinese vehicles (a measure initiated by Donald Trump), which has kept most Chinese EVs out of the U.S. even as they are selling like crazy in Europe. That probably won’t hold off Chinese EVs forever, which is why the administration is contemplating further restrictions. “China is determined to dominate the future of the auto market, including by using unfair practices,” Biden said in a statement in February. “I’m not going to let that happen on my watch.”

One view of this approach is that Biden is choosing to sabotage his own climate goals by cynically pandering to a tiny group of swing voters. As Vox’s Dylan Matthews has observed, less than 1 percent of Americans work directly in the auto industry, whereas more than 90 percent of American households have a car.

The Biden administration, unsurprisingly, sees the situation differently. Biden’s team starts from the premise that decarbonizing the U.S. economy will be a decades-long effort requiring sustained political buy-in from the public. Chinese EVs might lower emissions in the short term, but the resulting backlash could help elect Trump and other Republicans intent on rolling back the Biden administration’s hard-won climate achievements. Keeping out Chinese EVs now, in other words, may be necessary to save the planet later.

“We ran this experiment before,” Jennifer Harris, who served as the senior director for international economics in the Biden administration, told me, referring to the first China shock. “We saw whole industries shift overseas, and Trump rode those grievances right to the White House. And last time I checked, he didn’t do much decarbonizing.” Already, Trump is trying to turn Chinese EVs into a wedge issue in the 2024 election; his recent “bloodbath” comments were a reference to what would happen to America if Chinese cars were allowed into the country.

That doesn’t mean the Biden administration is giving up on an electric-vehicle future; it just means that future will need to be built at home instead of imported from abroad. Threading that needle won’t be easy. Apart from Tesla, American automakers still make the bulk of their profits selling gas-powered pickup trucks and SUVs while bleeding money on EVs. (Last year, GM lost $1.7 billion on its EV business; Ford lost $4.7 billion.) Although the generous subsidies in the Inflation Reduction Act are designed to speed up the pivot to electric vehicles, U.S. companies—including Tesla—aren’t close to profitably producing EVs nearly as cheaply as China can today.

The most straightforward way to buy time is by imposing further trade restrictions. But doing so effectively requires careful calibration: Expose American automakers to Chinese competition too quickly and they could whither and die, but protect them for too long and they might remain complacent selling expensive gas-guzzling cars instead of transitioning toward cheaper EVs. “The sweet spot is where you prevent a rapid shift of production to China while also holding the auto industry’s feet to the fire,” Jesse Jenkins, who leads the Princeton Zero-Carbon Energy Systems Research and Optimization Lab, told me.

Separating technocratic analysis of policy objectives from the vicissitudes of politics, however, is easier said than done. Trump recently called for a 100 percent tariff on Chinese cars; Republican Senator Josh Hawley of Missouri recently proposed legislation to raise that to 125 percent. Even congressional Democrats—many of whom are facing close elections in Rust Belt states such as Michigan, Ohio, and Wisconsin—have recently begun pressuring the Biden administration to raise tariffs further.

That isn’t the only way political currents could undermine the transition to electric vehicles. In order to compete with Chinese EVs, American companies must, paradoxically, learn from Chinese battery makers, who have spent decades developing the best EV batteries in the world. The U.S. auto industry knows this, which is why in February of last year Ford announced a partnership with China’s leading battery maker, CATL, to open a factory in Michigan. Ford would pay CATL to, in the words of Ford’s chairman, “help us get up to speed so that we can build these batteries ourselves” and create 2,500 new manufacturing jobs in the process. (Such partnerships are common in the EV industry; Tesla, for instance, partnered with the Japanese company Panasonic to develop its batteries.) Everybody would win: Ford, CATL, American workers, the planet.

But the backlash was swift. Republican Governor Glenn Youngkin of Virginia called the Ford-CATL partnership a “Trojan-horse relationship with the Chinese Communist Party” and vowed to keep similar projects out of his state. House Republicans launched multiple investigations into the deal, claiming that it could pose a national-security risk. Senator Joe Manchin of West Virginia, who was instrumental in passing the Inflation Reduction Act, has balked at the notion that a partnership with a Chinese company could qualify for the subsidies that that law provides.

[Zoë Schlanger: Joe Biden and Donald Trump have thoughts about your next car]

Perhaps not coincidentally, the Biden administration eventually announced new guidelines that could disqualify the deal, and others like it, from being eligible for some of the IRA’s tax credits and grants—a move that would make it much harder for American car companies to gain the expertise they need to produce better, cheaper EVs. “It’s ironic, really,” Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies, told me. “Our efforts to cut China out from every part of the supply chain might actually be what prevents us from competing with their EVs.”

Herein lies the Biden administration’s deeper dilemma. Decarbonizing the U.S. while retaining a thriving auto industry requires a delicate balance between tariffs and subsidies, between protection and competition, between beating the Chinese and learning from them. The prevailing sentiment toward China in Washington, however, is neither delicate nor balanced. That America’s leaders are committed to preventing another China shock is commendable. But going too far in the other direction could produce a different kind of avoidable disaster.