As a communist command economy, China is able to target strategic areas of manufacturing in a way the U.S. free market can’t. China has immense manufacturing prowess already and is targeting clean tech.
America Is Losing the Green Tech Race to China
by David Wallis-Wells, The New York Times, May 22, 2024
On May 14, President Biden announced a major escalation of the country’s emerging climate trade war with China, raising existing tariffs on Chinese electric vehicles to 100 percent — a unilateral quadrupling. …
In 2019, Chinese E.V. exports totaled $400 million; by 2023, they had reached $34 billion, a precipitous 85-fold increase and enough to help make the country, as recently as five years ago an afterthought in global auto exports, today the world’s top exporter of all cars. Nearly 60 percent of all the world’s E.V.s are now sold in China, which is home to three of the world’s four biggest E.V. manufacturers…
When you move upstream from final products into the green-tech supply chain, China dominates even more. It produces 84 percent of the world’s solar modules, according to a recent report by BloombergNEF. It produces 89 percent of the world’s solar cells and 97 percent of its solar wafers and ingots, 86 percent each of its polysilicon and battery cells, 87 percent of its battery cathodes, 96 percent of its battery anodes, 91 percent of its battery electrodes and 85 percent of its battery separators. The list goes on…
After test-driving a dozen vehicles at Beijing’s big annual automotive show, electric-vehicle analyst Kevin Williams thought he had his answer: Chinese E.V.s were simply better and more compelling than their European and American counterparts, he said. “Now that I’ve seen a glimpse of what’s going on in China,” he wrote, “the Western manufacturers, particularly the American ones, don’t seem like they’re trying at all.” [end quote]
The U.S. Finally Has a Strategy to Compete With China. Will It Work?
The strategy is a three-legged stool consisting of tariffs, security restrictions and tech subsidies
By Greg Ip, The Wall Street Journal, May 20, 2024
…
The strategy is a three-legged stool. The first consists of subsidies to build a viable technology manufacturing sector, from clean energy to semiconductors. The second is tariffs on Chinese imports that threaten those efforts. The third is restrictions on access to money, technology and know-how that could help China compete. A fourth leg, a unified economic front with allies, remains unrealized… [end quote]
U.S. Seeks to Join Forces With Europe to Combat Excess Chinese Goods
Treasury Secretary Janet L. Yellen warned that China’s industrial strategy posed a global threat that requires a united response.
By Alan Rappeport and Liz Alderman, The New York Times, May 21, 2024
Treasury Secretary Janet L. Yellen said on Tuesday that the United States and Europe needed to work together to push back against China’s excess industrial capacity, warning that a wave of cheap Chinese exports represents a grave threat to the global economy… [end quote]
Only a couple of decades ago economists cheered for globalization. International sourcing provided Americans with a flood of cheap products which helped maintain our standard of living with minimal inflation. At the same time, the American manufacturing sector was gutted and millions of well-paid jobs were lost.
Capitalism rests on a foundation of supply and demand. Investors will pour capital into companies with a competitive advantage. The provider of superior goods at a lower price will gain market share. China’s experience of low-cost manufacturing over the past 2 decades appears overwhelming.
The “3-legged stool” of subsidies to businesses that can’t attract free-market capital, tariffs and barriers to needed technology is pretty pathetic. It’s just as pathetic that the U.S. has an official policy of encouraging Europe to do the same. This defensive policy is meant to give protection to domestic manufacturers while they ramp up their capacity and competence. There’s plenty of capital in the market but it’s not being effectively invested to gain competitive advantage.
I don’t see how this can progress well for our Macro economy. By definition, any policy that blocks or adds tariffs to the low-price supplier will be inflationary. And there’s no guarantee that the American suppliers will succeed in the marketplace without expensive taxpayer subsidies as well as consumer tariff subsidies.
Wendy
