Is China about to unleash another wave of deindustrialization in the rich world? About a million American manufacturing workers lost their jobs to Chinese competition between 1997 and 2011, when that country integrated into the global trading system and began shipping cheap goods overseas. Since then, everything from the rise in deaths among working-class Americans to the election of Donald Trump has been blamed on that “China shake.” The rejection of liberal attitudes toward trade also explains why politicians today defend by industrial policy. Chinese automakers are enjoying an astonishing boom. And the situation is fueling fears of another disastrous shock. In reality, the successes of Chinese automobiles should be celebrated, not feared.
Five years ago, China shipped only a quarter as many cars as Japan, then the world's largest exporter. Last week, the Chinese sector announced the export of more than 5 million cars in 2023, surpassing the Japanese total. China's largest automaker, BYD, sold 0.5 million electric vehicles in the fourth quarter, a figure that leaves Tesla in the dust. Chinese electric vehicles are so elegant, fast and, above all, cheap that today the limit on their export is set by the shortage of ships to transport them. As the world decarbonizes, demand will increase even more. By 2030, China could double its share of the global market to a third, thereby ending the dominance of Western national champions, especially in Europe.
This time around, it will be even easier for politicians to blame any job losses on Chinese dirty play. A chilly geopolitical climate will fuel sentiment that subsidized production unfairly leaves Western workers by the wayside. And there is no doubt that there have been subsidies. Since launching its “Made in China” program in 2014, China has blatantly ignored global trade rules and doled out handouts to its automakers. It is difficult to pinpoint the value of the cheap loans, capital injections, purchasing subsidies and public contracts enjoyed by Chinese companies. However, by one estimate, total public spending in the sector was around a third of electric vehicle sales in the late 2010s. Those subsidies are in addition to the plundering of the technology carried out through joint ventures with the Western automobile manufacturers and Western and South Korean battery manufacturers.
Policymakers in the rich world will therefore be tempted to protect their automakers against the onslaught of state-backed competition. In October, the European Commission opened an investigation into Chinese cars. President Joe Biden is said to be considering raising tariffs on them, even though American automakers, protected by a 27.5% tax and aid from the Inflation Reduction Act, today face little Chinese competition. The fact is that the exclusion of Chinese cars would be a mistake. The potential gains for the West from an abundant supply of cheap, green vehicles are immense and dwarf the cost of disruption and the dangers it entails.
One of the reasons is that the automobile market is going to be disrupted, apart from trade with China. In 2022, between 16 and 18% of new cars sold worldwide were electric; In 2035, the European Union will ban the sale of new cars with internal combustion engines. Although companies retain their workers by switching to making electric vehicles, the new process is less labor-intensive. Just as the first Chinese shock was responsible for less than a fifth of the total manufacturing job losses recorded at the time (many of them attributable to lauded technological advances), there is also a danger today of confusing the disruption caused by the change to electric vehicles with that caused by their Chinese production.
Let us consider, on the other hand, the benefits of allowing commerce to flow. Vehicles are among the population's most important purchases, representing about 7% of American consumption. Cheaper cars mean more money to spend on other things at a time when real wages 3 have been squeezed by inflation. And Chinese cars are not only cheap, they are also of better quality; especially when it comes to the smart features of electric vehicles made possible by Internet connectivity. Furthermore, it cannot be said that the existence of an automobile industry determines the economic growth of a country.
Denmark has one of the highest standards of living in the world without a national car manufacturer. Even with cars rolling off Chinese assembly lines, the economy is chugging; in part, because it has been greatly distorted by subsidies and state control.
Finally, let's consider the benefits to the environment. Politicians around the world are now realizing the difficulty of asking consumers to go green as backlash against costly emissions reduction policies grows. And electric vehicles are also today more expensive than cars that consume a lot of gasoline (although the running costs are lower). Therefore, the adoption of lower-priced Chinese cars could facilitate the transition to net-zero emissions. The cheapest electric vehicle sold in China by BYD costs about $12,000, compared to $39,000 for the cheapest Tesla in the United States.
And the risks? The threat to the industry from cheap imports is often exaggerated. The lesson from the rise of Japanese and South Korean automakers in the 1980s is that competition spurs local companies to shift gears, and entrants eventually move production closer to consumers. BYD has already confirmed that it is opening a factory in Hungary, and many Chinese manufacturers are looking for locations in North America. Meanwhile, companies like Ford and Volkswagen are scrambling to catch up with Chinese firms. Last year, Toyota said a breakthrough in its "solid-state" technology would allow it to dramatically reduce the weight and cost of its batteries.
Another concern is national security. It would be risky to rely entirely on China for batteries, whose importance to electrified economies will go far beyond cars. It is also possible to use it for monitoring electric vehicles, which are packed with chips, sensors and cameras. (China has even banned locally made Teslas from some government properties.) However, as long as presidents and spies travel in vehicles made in the West or by their allies, there is little reason to fear that consumers will travel on wheels. Chinese; They can take care of personal privacy issues themselves, and locally made cars will be easier to inspect.
Policymakers should therefore restrain their protectionist instincts and worry only in the unlikely event that the Western automobile sector suffers a total implosion. However, there should be no fear that a strong market share for Chinese automakers will stimulate broader competition. If China wants to spend its 5 taxpayers' money subsidizing global consumers and accelerating the energy transition, the best response is to welcome it.
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Translation: Juan Gabriel López Guix
