In the increasingly bitter trade dispute between China and the West, electric vehicles (EVs) have become a major flashpoint. At this week’s G7 summit in Apulia, Italy, we have once again seen G7 leaders accuse China of dumping excess supplies of EVs on Western markets. Threats of additional tariffs on Chinese EV exports have also been in the air.
However, while the talk has undoubtedly been tough – even before the summit started, US President Joe Biden had described the Chinese approach as “cheating” – in practice, Western leaders will find it difficult to justify aggressive measures against Chinese EV exporters. For one thing, the evidence for the prosecution is far less compelling than G7 leaders would have us believe. For another, there are many reasons why a confrontation would be counterproductive.
“Indeed, regarding battery technology and chipset design, China's automaker, BYD, can now claim to be a global leader.”
According to the West, Chinese automakers are now producing far more EVs than domestic demand can sustain. Subsidies from the Chinese government maintain an unrealistically low price for these vehicles. Unable to sell these cheap EVs at home, China’s automakers are supposedly flooding European and North American markets, unfairly damaging the business of Western manufacturers.
Unfortunately, while such accusations have already seen the US introduce 100% tariffs on Chinese EV imports and the EU initiate an ongoing subsidy investigation, they do not stand up to scrutiny. As an analysis conducted by the independent research group Rhodium points out, the capacity utilization rate of China’s automotive industry has barely changed over the past three years, giving a lie to suggestions of overcapacity.
In fact, despite a lack of brand recognition, there is good reason to believe that the growing popularity of Chinese EVs on world markets is owing to their superior manufacturing. IMD’s own Future Readiness Indicator, an index measuring resilience to technological change and broader transformation, reveals that China’s BYD has made more progress than any other auto manufacturer over the past 12 months, currently standing second only to Tesla in the international ranking.
Indeed, regarding battery technology and chipset design, BYD can now claim to be a global leader. It is also making significant advances in software design. Other Chinese manufacturers, including Geely, Nio, and Li Motors, are also innovating aggressively.
“In any case, if it is to meet its carbon-emissions reduction targets, the West needs to produce more competitively priced EVs.”
Given the lack of evidence for (and substantial evidence against) their argument, the lobbyists representing North American and European automakers must be doing a good job. They have persuaded policymakers that their clients need protection from cheap imports when the real problem seems to be a lack of innovative R&D on the part of Western auto manufacturers.
However, by shutting China’s EV manufacturers out of Western markets, we miss the chance to work with them through joint ventures, localized supply chains, and so on. This means that we also miss out on the opportunity to learn from them in terms of making a successful technology transition. Protectionist policies in developed markets will encourage China’s EV manufacturers to target developing economies (where their sales are already soaring), making it much harder for Western automakers to compete there.
In any case, if it is to meet its carbon-emissions reduction targets, the West needs to produce more competitively priced EVs. The row about oversupply distracts from the bottlenecks in many Western countries around the lack of necessary infrastructure, such as charging points and grid connections.
All of which underlines the risks of escalating hostilities with China over its EV exports. Falling into this trap will not serve Western national interests. Rather, Western leaders should look for ways to work more closely with China in the transition to clean transport worldwide.
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