Canada looks to join the U.S. in drawing a “line in the sand” against Chinese EVs while automakers jockey to stay out of the conflagration
As history has repeatedly proven, one trade tariff begets another, then another — until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed.
Mark McKinnon, American political advisor
With Israel threatening an imminent ground invasion of Lebanon and Vladimir Putin now claiming the right to use nuclear weapons if assaulted by a non-nuclear state that has the backing of a country with nuclear weapons — that would be a U.S.-backed Ukraine, if you’re not catching the reference — a looming trade war might seem small fry. Hardly newsworthy, even. But when the conflagration involves China and the United States and threatens to become the biggest danger to the global automotive industry in a century, well, then it becomes a little more personal, especially since Canada, like it or not, is caught right in the crossfire.
The reasons given for the ban is that such connectable cars could expose security weaknesses in North American electrical grids. Everyone not required to spout the requisite political drivel, however, recognizes this latest roadblock for exactly what it is: America protecting its automobile-manufacturing industry against an invasion of cheap Chinese electric vehicles.
Building Fortress America
The most striking thing about the latest announcement is the level of overkill being applied. To continue the war metaphor, it’s a little like dropping a nuclear bomb and then razing the same target with napalm. Methinks you might have accomplished the mission with the first salvo.
Caught in the crossfire
The problem with tariffs, especially those as wide-ranging as these, are the unintended victims. Obviously, as the headlines scream, Canada looks to join camp U.S. Thus, we should expect to receive the full ire of an enraged China. Judging from the news out of the E.U. — namely that its proposed tariffs are still open to interpretation — China might negotiate its way into a reduction of Europe’s proposed penalties. No such negotiations are likely with America — and, by association, Canada — so we can expect to be confronted by the full force of Chinese sanctions.
War: politics by other means
Even domestic automakers could get caught in the middle. Despite the obvious tensions between the two warring governments, Ford recently decided to license battery manufacturing technology from China’s Contemporary Amperex Technology, the world’s largest producer of batteries for EVs.
The company’s reasoning is simple. CATL is the acknowledged leader in the production of lithium-iron phosphate (LFP), a cheaper alternative to the nickel-manganese cobalt (NMC) most North American suppliers produce. The cost savings would give Ford a leg up on the competition, especially in the electric pickup segment, where large batteries — and their inherent greater costs — are a major roadblock to acceptance.
A game of economic ‘chicken’
Like all tariff wars, this battle for cheap, cheerful EVs is a game of economic chicken. Who has the most resolve, which economy can withstand the financial impact the longest, and whose industries can adapt the quickest?
You might be surprised by my conclusion — I certainly was when I wrote this — but I think the United States wins this one. I know that the consensus is China is ascendant while the U.S. is in decline, but it strikes me that China’s auto industry needs the American market more than the United States needs cheap and cheerful Chinese EVs.
As threatening as that may seem, it’s also a weakness. Having already committed as much as half-a-trillion dollars to subventing this excess capacity, China absolutely needs exports — substantial exports! — to sustain the projected growth. Without access to American and Canadian markets, and with the European Commission likewise looking to restrict sales, the potential for exports is greatly diminished.
So, who will blink first? Motor Mouth continues to contend that it will come down EV mandates. Simply put, the politicians who are mandating minimum EV sales requirements and the automakers trying to fulfill those quotas need access to cheap Chinese cars and technology. We are long past well-off, affluent “first intenders” sustaining EV sales growth. If Western nations really are to reach their stated EV adoption goals, lower- and middle-class consumers need lower-cost alternatives than what Western legacy automakers are offering.
For now — and probably the foreseeable future — those cars and technologies can only come from China. As long as there are EV mandates in place, a Chinese invasion of inexpensive BEVs is therefore a threat. Absent such mandates — as now seems possible in both Canada and the United States — China has much less leverage. Consumers could continue to shop less expensive alternatives — hopefully increasingly popular and emissions-reducing hybrids! — rendering the Chinese threat moot. Despite what much of the mainstream media contends, China’s victory is hardly a foregone conclusion.
Perhaps the wild card in this conflict is that that, unlike previous chairmen, whose focus on building the Chinese economy was absolute, Xi Jinping has often seemed pre-occupied with ‘party purity’ at the expense of matters fiscal. China’s recent lack of economic focus has already made a disaster of its real-estate market in much the same manner as is being applied to its EV industry. It built more condos — actually entire cities of condos — than the market could bear.
America is defending an industry that has long been in decline. China’s record as the economic engine of the world is under threat for the first time in nigh on 30 years, and it is depending on EV exports to right that ship. In other words, no matter what the outcome, the result will be industry-changing, and perhaps even economy-changing. Which does, when you think of the massive ramifications, make automotive news worthy of some above-the-fold headlines.
Even in these exceedingly troubled times.
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