China Enters EV Trade War

US and EU already awash in counterproductive green subsidies

The reflection of a worker is seen at the production line of lithium-ion batteries for electric vehicles at a factory in Huzhou, Zhejiang Province, China, on Aug. 28, 2018. (Stringer/Reuters)

Commentary

China is boosting its economy with new subsidies that promote auto exports at the expense of jobs and industrial strength in the United States, the European Union, Japan, South Korea, India, and other allied countries.

The subsidies could also decrease global emissions. By 2030, 1 in 3 new vehicle sales will be electric. China dominates that market, with 60 percent of worldwide electric vehicle (EV) sales.

China has used its economic strength in the past to build its military and threaten its neighbors, including Taiwan, Japan, the Philippines, and India. There’s no reason to believe that it won’t channel its new EV profits into the same malign endeavors.

Beijing announced the subsidies on April 25 in the context of reports of strong EV orders in March for China’s outbound shipments, according to Reuters. The Chinese Communist Party’s (CCP’s) economic planners sense massive profits from the global green trend and are trying to push the industry even further to accelerate China’s economy.

In addition to subsidies, the CCP will force Chinese banks to offer financial support to car manufacturers to expand foreign sales. Beijing has so much control over the Chinese economy that many of its subsidies and tariffs are unofficial. China’s companies must support other Chinese companies—or else.

Laws to that effect are superfluous when Chinese CEOs and managers from foreign companies in China regularly disappear for not showing sufficient enthusiasm for the CCP. Most recently, the police targeted U.S. and Japanese corporations, including Bain & Company, a white-shoe consultancy headquartered in Boston.

On April 25, China’s State Council asked its embassies, consulates, provincial governments, and financial institutions to increase support for exports and encourage the settling of trade in yuan rather than dollars.

China’s new subsidies add to an international trade war over EV sales.

In 2022, Democrats devoted $1.2 trillion through the misnamed Inflation Reduction Act to divert $3 trillion into the U.S. green economy, which increases energy prices and inflation in the United States and upsets its allies in Europe and the United Kingdom, who don’t want the subsidies to price them out of U.S. markets.

U.S. and foreign companies announced 75 new facilities in the United States totaling $45 billion, according to the Biden administration. Germany’s Volkswagen is planning a $2 billion EV plant in South Carolina and a battery plant in Canada to take advantage of U.S. subsidies. The European Union is responding with subsidies of its own that may reallocate up to $1 trillion to the green economy by 2030.

The two main rationales for U.S. subsidies are to boost the U.S. economy while decreasing global emissions. These goals won’t come cheaply, as U.S. subsidies are ultimately paid for by higher taxes or dollar inflation, both of which hurt U.S. economic growth and, thus, geopolitical competitiveness against China and Russia.

Any environmental gains from the subsidies will be spread globally, but the costs will be borne almost entirely by U.S. citizens. The act subsidizes foreign industries in more than 20 countries, including Canada, Mexico, Australia, Japan, and South Korea, yet their taxpayers contribute nothing.

The subsidies will also support vehicle manufacturers in China, as the law has no U.S. sourcing requirements for commercial vehicles, and loopholes exist for passenger vehicle subsidies. U.S. taxpayers pay 100 percent of the subsidies. Still, they could get as little as zero percent of the benefit from new industry and jobs if, for example, a Chinese company built a vehicle in Mexico and exported it to the United States. Beijing could tax that company and use it to buy missiles that target Washington, New York, Tokyo, New Delhi, and Taipei.

The subsidies do a bad job of addressing climate change, as China produces twice as much carbon dioxide as the United States, and China’s green subsidies are unquantified.

At a time when Russia and China are destabilizing global politics, and the United States is already spending an unfair amount of U.S. taxpayer dollars for the provision of global security, it makes little sense to subsidize manufacturing in countries such as Canada and South Korea that don’t even contribute the minimum expected defense expenditure of 2 percent of GDP. These countries are free-riding not only on U.S. defense but also on U.S. green subsidies.

It makes even less sense to subsidize cars with components from China, Mexico, and Russia, which are imposing massive costs from the fentanyl crisis, war against Ukraine, and aggression toward Taiwan.

Meanwhile, the Democrats are wasting taxpayer dollars as U.S. economic and military power deteriorates relative to those of China.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.