WASHINGTON — China’s fast-growing production of electric cars and other green technologies has become a flashpoint in a new trade battle between the US and China, highlighted by Treasury Secretary Janet Yellen during her five-day visit to China and seized upon by former President Donald Trump in incendiary campaign remarks track.
China has sharply ramped up its production of cheap electric vehicles, solar panels and batteries, just as the Biden administration has pushed legislation to support many of those same industries in the United States. Concerns are growing not only in the U.S. but also in Europe and Mexico that China will try to shore up its own struggling economy with a wave of exports that could undermine factories abroad.
A U.S. trade group, the Alliance for American Manufacturing, noted in a February report that leading Chinese automaker BYD had recently introduced an electric SUV for the “astoundingly low” price of $14,000. China’s auto industry poses an “existential threat” to American automakers, the report said.
Trump accused at a meeting in Ohio late last month that China would try to export cars to the United States via Mexico. The US currently has 25% tariffs on cars from China, which has largely blocked vehicles from that country, but Mexico has a free trade agreement with the US.
Trump promised to block such imports with new tariffs but suggested that if Biden were re-elected it would be a “bloodbath” for the auto industry.
So what’s behind this new trade battle between the US and China? Here are some questions and answers about this issue:
WHAT IS CHINA’S THREAT?
After more than a decade of subsidizing its automakers, China has built a substantial auto industry that accounts for 60% of global electric vehicle sales, according to the Paris-based International Energy Agency.
Yet by some estimates, Chinese companies produce as many as 10 million more electric vehicles annually than they can sell domestically, the AAM said. That drives them to sell more cars abroad. A similar dynamic exists in other industries, such as solar panels, batteries and more traditional sectors such as steel.
“The concern is that the Chinese are building a lot of capacity in many industries across the board, including these new technology sectors, and if domestic demand doesn’t pick up, they will look for markets outside the country,” Eswar said. Prasad, an economist at Cornell University.
HOW IS THIS DIFFERENT FROM PREVIOUS TRADE FIGHTS WITH CHINA?
It’s quite similar. US officials say they have seen this movie before.
In his remarks on Saturday in Guangzhou, China, Yellen highlighted the Biden administration’s concerns by recalling a visit a week earlier to Suniva, a solar cell manufacturer in Norcross, Georgia.
The company “was once forced to close, like others in a number of industries, because it could not compete with the large quantities of goods that China was exporting at artificially low prices,” Yellen said. “It is important that this does not happen again.”
China is now the largest producer of solar cells in the world. Suniva closed in 2017 but restarted production with the help of cuts from the Biden administration’s Inflation Reduction Act.
Steel and aluminum imports to the United States surged about a decade ago after the Chinese government supported increased production following the 2008-2009 global financial crisis. These imports were hit by tariffs in 2017 during the Trump administration. Biden has kept the tariffs in place.
“What’s new is that concerns about overcapacity in some advanced sectors have become acute,” said Brad Setser, a senior fellow at the Council on Foreign Relations and a former Treasury official in the Obama administration. “China has clearly built up an insane amount of capacity to produce solar cells, and similarly large quantities of batteries. And now it is starting to export cars.”
DOESN’T THE UNITED STATES SUBSIDIZE THESE INDUSTRIES TOO?
Yes, the Biden administration has pushed through several bills that have provided financial support to clean energy and semiconductor manufacturers. China has even filed a complaint with the World Trade Organization, charging that some of Biden’s subsidies for electric car purchases violate trade rules.
But a 2022 report from the Center for Strategic and International Studies found that China’s industrial subsidies in 2019, in dollar terms, were double that of U.S. support.
And both Prasad and Setser added that China subsidizes the production of goods but does little to stimulate consumption by its own citizens. For example, during the COVID-19 pandemic, the US supported much higher consumption with several rounds of stimulus checks.
WHAT’S NEXT?
For now, the two sides have mainly agreed to talk about this issue. China has taken no step to address U.S. concerns, arguing that its cheap solar panels and other green products are helping the world fight the costly battle against climate change.
But the Beijing government has also recognized that overcapacity in the manufacturing sector and weak consumer spending are challenges it must overcome to achieve sustainable growth for its economy.
The rapid expansion of EV production has led to fierce price wars that are expected to drive some manufacturers out of business. Huang Hanquan, an industrial policy expert, said China needs better policy coordination so it can encourage the development of new technologies without pushing every province to promote the same industry and companies to overinvest.
“I think the Chinese realize how concerned we are about the implications of their industrial strategy for the United States, about the potential to flood our markets with exports that make it difficult for American companies to compete,” Yellen told reporters on Saturday. reporters.
“It’s not going to be solved in an afternoon or a month, but I think they’ve heard that this is an important issue for us,” she said.
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Associated Press writer Ken Moritsugu in Beijing contributed.
