Our Take, with Doug Sheridan
For a long time, Italian and French automakers didn't take EVs seriously. They're now asking the EU Com. to restrict imports of Chinese EVs, claiming they are thrown onto the market at dumping prices
Our Take, with Doug Sheridan
Peter Fischer writes in NZZ, a new ghost is circulating. It's called “Chinese overcapacity.”
For a long time, Italian and French automakers didn't take EVs seriously. They're now asking the EU Commission to restrict imports of Chinese EVs, claiming they are thrown onto the market at dumping prices. The President of the European Commission, Ursula von der Leyen, promptly initiated investigations.
Something similar is happening in the US. Treasury Sec Janet Yellen is expressing great concern that China's industry is producing too much and could therefore "flood" the world markets with cheap industrial products. Yellen wants to discuss this danger in a new bilateral dialogue with China, but also hints at new tariffs. On the campaign trail, Biden talks about tripling tariffs on Chinese steel.
By countering with tough sanctions, the US only strengthens China's will to become more innovative and technologically independent. The bosses of car manufacturers BMW and Mercedes-Benz AG, which have a strong presence in the Chinese market, seem to get this. They recently told German media being competitive was the best protection against Chinese competition. They continue to see the Chinese market as an opportunity and do not feel overly threatened.
The fear of the “Chinese danger” and the call for a protectionist reaction to it are probably as misguided as the warning about a “Japanese danger” in the 80s. Industrial policy is expensive and usually not effective. When the West gets cheaper solar panels and wind turbines, and when innovative Chinese EVs force European manufacturers to also improve (or exit the market), consumers win. Decarbonization will be expensive—shouldn't we want to keep costs down?
To Sum It Up 1: China and its companies will not rule the world by selling goods at little to no profit. this. Rather than enter a trade war, Western countries should demand unhindered access to the Chinese market. They could increasingly make this as a condition for Chinese companies to export their “green” goods and vehicles to Europe and produce them locally.
To Sum It Up 2: Overcapacity is a temporary phenomenon that the market will correct if you let it. Protectionism prevents this. Ghosts appear in fairy tales. They should stay there.
Our Take 1: Hundreds of years of global trade and economic outcomes have shown protectionism—in its many forms—to be the favored policy of losers. Sadly, history still too often repeats itself, and today's leaders (and voters) seem determined to repeat the mistakes of the past. If it continues to gain momentum, it will, without a doubt, end badly.
Our Take 2: If protectionism's "good for the West," walk us through the tariffs needing to be levied on China, where we end up after China slaps retaliatory tariffs and trade limits on Western products ranging from phones to software to agricultural products to LNG and crude, and why it'll be a positive outcome. We're all ears.
Free trade is best. Everyone loses with protectionism and trade wars.