On May 17th, the US magazine "Foreign Policy" recently published an article titled "The U.S. Should Stop Playing the Victim Over China Trade," stating that despite the US raising tariffs on Chinese electric vehicles to 100% and on batteries and key minerals to 25%, these measures are unlikely to deter the impact of Chinese electric vehicles on the US market. This is because these tariff measures have not fundamentally changed China's competitive advantage in the electric vehicle and battery sector, especially in terms of cost, quality, and innovation.
The article further explores how China has become a leader in electric vehicles and battery technology through conscious industrial policies and state support. It criticizes the US for its short-sightedness and inconsistency in handling policies related to electric vehicles and battery technology, especially in terms of government support.
The article calls on the US government to recognize the severity and complexity of the current situation and suggests that the US government adopt a more prudent and diversified strategy, such as strengthening international cooperation and investment, as well as enhancing the competitiveness of the domestic battery and mineral industry through public procurement and training. Such a strategy would not only help elevate the US's position in the global battery industry chain but also ensure its long-term economic security and technological innovation capabilities.
It seems that the US is gradually losing its comparative advantage. In this context, US President Joe Biden has decided to impose new tariffs on Chinese imports, with tariffs on electric vehicles as high as 100% and tariffs on batteries and key minerals facing 25% respectively. Is this measure truly in response to China's irregular behavior, as some claim?
Such claims are becoming tiresome. Even if that were the case, such high tariffs have clearly crossed the line of trade rules. It is worth noting that the US has not filed a complaint with the World Trade Organization (WTO) regarding this, while China has filed a complaint against US subsidies for electric vehicles, citing "localization" requirements that violate WTO laws. In reality, the deeper reason for the US imposing tariffs may reflect more on China's comprehensive superiority in the field of batteries and electric vehicles, not only in terms of cost and quality but also in terms of innovation.
It is time to face this reality and deeply analyze how the US has reached this point. The US should stop portraying itself as a victim and instead seek a sustainable development path that ensures national security and promotes energy transition. From the current perspective, these tariffs will undoubtedly increase the burden on end consumers while slowing down the pace of the US energy transition.
So how did the US reach this point? Looking back in history, we can see that in the 1990s and early 2000s, Western countries shifted their economic focus to the service industry, concentrating on high-value segments in the supply chain such as research and development, branding, design, and marketing. A large portion of low-value manufacturing tasks were outsourced to other countries, including China.
However, Western countries once arrogantly believed that China would forever remain in the early stages of manufacturing and could not enter high-end fields like design, research, and marketing. But through thoughtful industrial policies and continuous efforts, China has made significant progress.
While the US and the EU were embroiled in disputes over biofuels or fuel economy standards, the Chinese government had already prioritized electric vehicles as a development area in 2007 and strengthened policies to secure key minerals in 2011. To further ensure supply chain stability, China has invested heavily in supporting companies to invest in mineral-rich countries through the Belt and Road Initiative.
Meanwhile, as the Chinese government transitioned from manufacturing to battery innovation, the US government moved in the opposite direction, largely influenced by the failure of the US solar component supplier Solyndra.
Despite receiving substantial subsidies from the US government, Solyndra eventually went bankrupt, sparking political anger from both parties. However, this anger was more politically motivated, as perfect risk assessments are impossible, and failure is an integral part of the innovation process.
Unfortunately, after the Solyndra incident, the US government chose not to support the then-emerging A123 company. The consequence of this decision was that A123's technology eventually made its way to China and evolved into today's lithium iron phosphate batteries. These batteries require significantly fewer key minerals and now hold about 40% of the global market share.
Currently, China not only firmly controls critical supply chains but also consistently achieves high product quality. These are realities that the US government cannot ignore. Whether it is the Trump administration or the Biden administration, there are ample reasons to be concerned about China's dominant position in key mineral and battery supply chains.
In fact, Chinese companies produce over 60% of important battery components such as lithium, graphite, cobalt, and nickel, and manufacture approximately 80% of cathodes, anodes, and battery cells. Even allied countries like Canada with similar supply chain dominance would raise alarms in the US. The United States is actively seeking to diversify its supply chain, which is undoubtedly a wise move. While China's incentive measures have successfully promoted domestic battery production, especially in large factories, the effects of these measures are not significant in the midstream of battery manufacturing.
To address these challenges, Columbia University partnered with the U.S. Department of Energy to convene a roundtable meeting with industry leaders and investors, reaching compelling conclusions.
China undeniably holds a dominant position in this field, not only being competitive in raw material costs and quality but also possessing unparalleled production capacity advantages. This capacity gives China significant pricing power and the ability to maintain market share, posing a challenge to the diversification efforts of the United States and other countries.
However, the U.S. also faces other obstacles in diversifying its supply chain. For instance, access to financing largely depends on reliable purchase agreements. Potential investors tend to be cautious in commitments without concrete financial support.
It is commendable that the U.S. Department of Energy has been actively supporting these projects, a fact recognized by the supply chain and investors. Nevertheless, there remains significant uncertainty in U.S. government support and industrial policies, especially with the potential re-election of President Donald Trump.
Political polarization and the strong influence of lobbying groups clearly impact the development trajectory of the United States. Investors at the roundtable expressed concerns about policy inconsistency and uncertainty, as well as China's strong competitiveness, when investing in North American projects.
Currently, investor enthusiasm for North American projects is not high due to reasons such as high risks, high interest rates, complex licensing procedures, and fluctuating battery prices. According to a prospective assessment by the International Energy Agency (IEA) yet to be released, China is expected to maintain a significant advantage in the supply chain until 2040.
In seeking policy choices to enhance U.S. competitiveness, tariffs may serve as part of the solution, although they could potentially trigger trade wars and fundamentally undermine global efforts to combat climate change.
For a long time, the U.S. has criticized China's export-oriented growth strategy, especially in strategic sectors like the automotive industry, which employ a large workforce. It is reasonable for the U.S. government to protect these industries, but there is a clear distinction between protecting an industry and maintaining competitiveness within it.
One possible intervention by the U.S. could be setting a price floor for midstream battery components, similar to price floor strategies used in agriculture. This would significantly alter the financial landscape of the private sector. While this policy may come at a high cost, it can effectively drive supply chain diversification.
Other policy measures may include adjusting market access and pricing mechanisms to reflect different production methods. In the early 1990s, World Trade Organization member countries overlooked the importance of production methods, and correcting this oversight now could help establish more reasonable standards in crucial mineral trade agreements.
However, the U.S. could also draw inspiration domestically and potentially learn from China's development experience. China's rise has been driven by a series of plans and goals, but due to the U.S. political environment, lobbying groups can easily overturn sound industrial policies after a change in government, a strategy currently unfeasible in the U.S.
This is regrettable as such strategic policies have proven effective. For example, the EU's target to meet 25% of its critical mineral demand by 2030 through recycling greatly boosted industry confidence.
The U.S. can also draw lessons from China's successful implementation of public procurement policies, especially in promoting electric buses. Additionally, significant investments in workforce development are necessary, particularly as training for critical minerals and battery sectors remains a major challenge for the U.S.
The U.S. government must realize that the current situation is unprecedented and cannot be addressed solely through "protectionism and fiscal expenditure." The high costs will be borne not only by consumers and the government but also such strategies will struggle to effectively curb China's rapid progress in the battery sector.
Importantly, the U.S. needs to acknowledge that innovation is no longer its core competitive advantage in this field. As a global leader in battery manufacturing, CATL has 18,000 research and development personnel, driving innovation boundaries that American companies find hard to reach.
Therefore, the U.S. should seek deep cooperation with international partners for two reasons: to diversify the supply chain and to explore how to prevent China from leveraging its dominant position in the supply chain.
This strategy should include strengthening mineral security partnerships, a U.S.-led alliance dedicated to investing more in critical mineral projects globally to enhance supply security. Additionally, the U.S. should more actively utilize international development finance institutions for direct investments. Finally, reaching closer mineral agreements with countries like Brazil, India, and Indonesia is crucial, prioritizing products with higher social and environmental benefits.
This is particularly necessary because in many countries, the basic conditions for local competitiveness in developing specific minerals and battery components may be superior to the U.S., with the potential to compete with China. These countries can leverage U.S. assistance to enhance their competitiveness, which will ultimately be beneficial for the U.S.
