The EV trade war between China and the West heats up
Summary
- But Elon Musk’s carmaker is somehow escaping the worst of it
In the trade war between the West and China, a battle over electric vehicles (EVs) has begun. In May, as part of a broader volley against Chinese tech, America slapped a 100% duty on Chinese EVs. On July 2nd Canada launched a consultation on what it called “unfair Chinese trade practices" in the EV industry. Two days later a provisional tariff of 37.6% on Chinese EVs took effect in the EU. On July 10th, days after the symbolic swipe of opening an anti-dumping investigation into European brandy, China’s ministry of commerce signalled it will not take the assault lying down. It says it will study whether the EU’s tariffs create barriers to free trade.
Western car companies with large Chinese businesses fear getting caught in the crossfire. They would join earlier casualties of the intensifying conflict. Chinese government agencies have been told to tear out software and hardware made by American firms such as IBM, Microsoft and Oracle, ostensibly on national-security grounds. Some officials have even been told not to buy Apple’s iPhones.
China’s most obvious target in EV tit-for-tat is Tesla. America’s EV pioneer has a huge presence in China and is constantly vying with BYD, a local rival, to be the world’s top maker of battery-powered cars. And yet, far from being the big loser from the tariff spat, Tesla appears to be notching one win after another in China.
In April its boss, Elon Musk, struck a deal to use a local company’s mapping data for a new autonomous-driving system. In June the company won approval to test such a system in Shanghai. Even more surprising, earlier this month the government of Jiangsu province added Tesla to its official list of suppliers—despite earlier reports that Teslas were banned from sensitive places such as airports because their sensors snaffled too much information. Jiangsu’s decision grants permission to state and Communist Party entities to purchase Teslas and gives the firm something close to the status of a local producer.
It is unclear why Tesla appears invulnerable. Perhaps Mr Musk persuaded Li Qiang, China’s premier, that Teslas do not pose a security threat when the two of them met in April in Beijing. Or, as some insiders close to Tesla’s factory in Shanghai suspect, the company’s successes are connected to Mr Musk’s recent chumminess with Donald Trump, who looks likelier than not to return to the White House after America’s presidential election in November. If the car boss becomes a presidential adviser, as some are speculating, he could talk America’s China-basher-in-chief into moderating his stance.
There is a less conspiratorial explanation for Tesla’s run of good fortune. The treatment of Mr Musk’s firm illustrates the awkward spot China’s government finds itself in. On the one hand, it must appear tough on hostile foreign powers accusing Chinese companies of flooding markets with subsidised products. On the other, as China’s economy slows, it is trying to signal that it remains open to foreign investment. In this context, a crackdown on one of the most prominent outside investors would send the wrong message.
The Chinese government may thus opt for a more calibrated counterstrike. One likely outcome is for it to make greater use of America’s weapon of choice—export restrictions. China has already curbed exports of gallium and germanium, two minerals whose production Chinese firms control and which are crucial to all manner of electronics, including those in electric cars. China could also update its list of controlled exports in areas where Western firms rely on Chinese intellectual property. In December lidar, a radar-like laser technology used in autonomous-vehicle sensors, appeared on that list alongside innovations in gene editing and synthetic biology. Expect more such laser focus.
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