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The writer is vice-president of the Asia Society Policy Institute
Amid resounding applause from the European parliament, Commission president Ursula von der Leyen recently announced the initiation of a subsidies investigation into China’s unfair trade practices in the electric vehicle sector.
This was a bold move considering potential repercussions for European car and other companies operating in China. With the memory of how Chinese unfair and predatory practices affected the European solar industry, von der Leyen emphasized the need for Europe to proactively protect its auto sector.
The EU’s action should prompt US policymakers to reassess their own policies and formulate a proactive response.
Over the past decade, the Chinese EV industry has thrived on extensive state subsidies and government support, allowing China to become the world’s leading vehicle exporter, surpassing Germany and Japan. Beijing’s “Made in China 2025” policy specifically targeted “New energy vehicles and equipment” as one of the ten technology sectors for global dominance.
Additionally, China has strategically secured crucial mineral deposits, including lithium, necessary for battery production. As a result, Beijing has dictated that EVs must use Chinese-made batteries, which account for up to 60% of a car’s value. Despite China having the world’s largest domestic automotive market of around 26 million vehicles, its EV companies are producing far more than domestic demand, estimated at an excess of up to 10 million vehicles annually.
In many ways, the Chinese EV industry follows a similar playbook to Beijing’s development of its solar, steel, and aluminum sectors. Massive subsidies led to overproduction and oversupply, saturating global markets and crippling international competitors. The surplus of Chinese EVs has already reached Europe and other parts of the world.
Thus far, the US has avoided an influx of Chinese cars due to factors such as high tariffs and ineligibility for consumer EV tax credits. However, this may change as Chinese companies grapple with excess production. Therefore, it is in the US’s best interest to take early action.
The Biden administration has various tools at its disposal. It can initiate a subsidies investigation under the US countervailing duty law, similar to Europe’s approach. Another option is a new investigation under Section 301 of the Trade Act, specifically targeting Chinese unfair practices in the automotive and battery sectors. However, this would require time. The administration could also consider cases on national security grounds or safeguards, although these remedies would not be China-specific and could lead to disputes with allies.
Rather than embarking on lengthy trade investigations, the Biden administration can adjust the vehicle levy as part of the ongoing review of China tariffs. This could provide more certainty in shielding the American market from an influx of Chinese EVs. Additionally, this adjustment could pave the way for reducing tariffs on other goods that are negatively impacting American interests more than China’s.
Trade representative Katherine Tai has emphasized the need for strategic use of trade tools. This presents a prime opportunity to put this policy objective into action.
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