The president will have to choose between standing up to China and pursuing his climate agenda.
There was some tough talk about China from President Biden during the State of the Union. Good.
But the president will have to choose between standing up to China and pursuing his climate agenda, at least as it currently stands. That’s the case in quite a few areas, not least the replacement of traditional cars with electric vehicles (EVs), a switch that may not only allow China to establish the kind of presence in global auto markets that it has never managed to achieve before but also, because of the dominant position that China has already established in the EV supply chain, leave Western EV manufacturers dangerously dependent on Beijing’s approval. That’s one reason billions in taxpayer dollars will be spent in the effort to establish an EV battery-manufacturing sector in the U.S. and the E.U. But even that does not solve the problem of what goes into the EV’s battery, where the supply chain is currently dominated by China.
Meanwhile, this from Axios’s Jael Holzman, is well worth reading:
The U.S. electric car market and its reliance on China is heading for a collision with Congress. . . .
Why it matters: Lawmakers are setting their sights on the auto industry’s global supply relationships as bipartisan support emerges to deal with the dirtier sides of “clean energy.”
Driving the news: House Republicans and Senate Democrats launched probes in recent weeks into EV and battery manufacturers, their reliance on Chinese businesses, and potential risks to national security and efforts to prevent forced labor abroad.
There are two reasons why this is taking place. The first is to confront the reality that some EVs are not so squeaky clean as their promoters suggest. The second is to try to avoid the U.S. building up a dependency on China in the automotive sector. Both are worthwhile aims, although the second would be infinitely better served by abandoning the effort to force consumers to buy EVs. The precedent being set by New York and California (bans on the sales of new internal-combustion engine cars) should not be followed nationwide, and both New York and California should reverse course.
Back to Axios:
Senate Finance Chairman Ron Wyden asked eight carmakers for detailed information about their supply chains after a report alleged they had “several supply chain exposures” to China’s Xinjiang region, where oppressed Muslim communities are believed to be forced to work at nearby factories. . . .
Republicans on the House Science, Space and Technology Committee also began reviewing potential China exposures in federal infrastructure grants to battery tech firms for U.S. projects.
Good.
But note this (from the same Axios story):
Between the lines: One auto industry source told Axios that the probes could be damaging if they make lawmakers question the benefits of EV and battery tax incentives, like those in the Inflation Reduction Act.
“The last thing we need is a political circus around all of this stuff where there are just constant derogatories questioning the value,” said the source, who requested anonymity to candidly discuss the matter.
Asking about forced labor is part of a “political circus”?
Many automakers now find themselves in a very difficult position. Responding to the signals (to use too mild a word) given by governments (if not consumers) on both sides of the Atlantic, they are now ploughing billions into EV production. But demand for such cars will, for a while anyway, owe more (so far as less wealthy consumers are concerned) to regulation and legislation than to what EVs have to offer. The result, inevitably, is that EV manufacturing will be highly politicized. The “circus” will not be leaving EV makers’ neighborhood any time soon. There is for example, the question of the cobalt used in lithium-ion batteries, such as those that power most EVs. It is estimated that around 70 percent of the world’s cobalt is found in the Democratic Republic of Congo, and that perhaps 15 percent of the DRC’s cobalt miners are under the age of 16. Neither that, nor forced labor, are things that the vendors of a product sold at least partly for its moral qualities want to hear spoken about too loudly. Too bad. What’s more, the reckless pace of the proposed transition to EVs will mean that carmakers will find it extremely difficult to clean up their supply chains at the same time as they start gearing up their production of EVs.
Axios only quotes the one (anonymous) source, but I would be surprised if he or she is an outlier in her industry. Under the circumstances, it’s also worth noting his or her anxiety over the prospect that subsidies for EVs and battery manufacturing might be “questioned.” To be sure, those subsidies could be worth a great deal of money, but it’s not unfair to suspect that that anxiety is also a reflection of automakers’ understanding that, left to free markets alone, EVs would not be sold in the quantities and on the time scale that governments are now expecting. This is rather at odds with the story we are being told about the wonders of EVs, but that’s where we now are.
Where we are also is in a place where many large automakers will now be actively lobbying for measures that encourage EVs and discourage traditional cars.
And so it goes.