It’s no surprise Joe Biden and Donald Trump are trying to outdo one another on blocking Chinese electric vehicles coming into the US. This counts as an electoral safety belt in key swing manufacturing states that both US presidential candidates need to win in November.

But despite Trump’s typically incendiary rhetoric and Biden’s quadrupling of EV tariffs to 100 per cent, China’s global dominance won’t be much directly affected. The US is already a very small – and shrinking – market for Chinese EV exports.

According to National Australia Bank’s economic analysis released this week, the value of Chinese EV sales to Australia is already seven times larger than it is to the US, for example.

There’s little chance of that equation changing much given bipartisan eagerness to pre-empt any attempt by China to bypass these tariffs by manufacturing in Mexico or Canada. The Trudeau government is considering how much to increase its 6 per cent tariffs on Chinese EVs given its close relationship with the US car market.

It’s more the prospect of new European tariffs likely to do immeasurable damage to Chinese EV expansion into Western countries, even if any new tariffs there will be much more modest in size.

The current European Union tariff on Chinese EV imports is 10 per cent. An anti-subsidy review of the EV market ordered by the European Commission is due in July and expected to recommend higher tariffs. How much higher is still not certain.

German automakers in particular are concerned about Chinese retaliation damaging their own declining but still valuable exports into China, while cutting off Chinese EVs would damage Europe’s emissions reductions targets.

Mercedes-Benz, for example, had planned to go all electric in Europe by the end of the decade but will now be making internal combustion and hybrid engine cars well into the 2030s.

The larger story is Chinese EV sales in most of Asia and elsewhere, including in its domestic market, will largely continue unchallenged.

According to the International Energy Agency, 59 per cent of the 13.8 million EVs sold last year were sold in China, where EVs made up 38 per cent of the country’s domestic car sales.

More than two-thirds of those were made in China by Chinese manufacturers, with the rest produced by joint ventures in China with car manufacturers like Tesla as well as the diminishing percentage of other mostly European imports.

The domestic market is not as buoyant either, given the slowdown in spending by Chinese consumers. But it’s still an extremely large and expanding base that dwarfs US and European automakers’ abrupt slowing of their previous EV production plans.

In contrast to Ford Motor’s forecast multibillion-dollar losses on EVs, for example, China’s BYD, Li Auto and SAIC are operating at 80 per cent of rapidly expanding capacity. It’s more the smaller, newer entrants or Chinese manufacturers of internal combustion engine cars struggling badly with profitability and reduced sales.

Generous subsidies

Just as with rare earths processing and EV batteries, this growth in EV capability reflects long-term policies adopted by Beijing to build the industry over decades. China’s EV manufacturers began receiving generous subsidies from the state as a key future industry at least 15 years ago – well before anyone in the US dreamt up the Inflation Reduction Act.

Even China’s excess manufacturing capacity that forces down prices globally offers Beijing the benefit of discouraging other companies facing more immediate commercial pressures from trying to catch up and compete.

That helps explain why Chinese companies also dominate global supply of EV batteries with lower cost and increasingly higher-quality supplies – as well as the ability to maintain control of much of the processing of the minerals that go into them.

This history is the justification for governments around the world, including Australia, to now invest in their own forms of protectionism and subsidies.

It’s a trend supercharged by the West’s belated recognition of the significance of non-China supply chains. Much of the minerals, metals and other materials are vital for the energy transition, as well as for advanced technology for defence and more general uses.

Quite apart from the range of bans and tariffs on Chinese semiconductors, for example, US tariffs on Chinese lithium ion batteries and battery parts are rising from 7.5 per cent to 25 per cent. Tariffs on critical minerals and permanent magnets are increasing from zero to 25 per cent.

Perverse economics

And that’s before Donald Trump has his chance to double down.

Australia – without either a large domestic market or its own car industry – faces different choices than the US or Europe. It’s why $1 billion provided for solar panel manufacturing seems particularly perverse economics.

But as the Organisation for Economic Co-operation and Development warns, Australia is highly exposed to the risks of a slump in global trade. In part, that’s because of its attempt at an uneasy balancing act in developing its critical minerals processing industries while still being heavily reliant on Chinese investment and expertise.

That translates into fierce lobbying in coming months over what level of Chinese investment will preclude projects from eligibility for the government’s production tax credits for critical minerals refining and processing from 2027.

Some industry players expect Australia to follow the US limit of a maximum 25 per cent to retain eligibility for financial incentives. Others argue this would penalise reliable Chinese partners and projects with higher levels of co-investment but no majority Chinese control. Australian lithium and nickel producers selling to China for processing would also be excluded from supplying US battery makers or car manufacturers wanting US tax breaks and incentives.

Welcome to the old economic game of subsidies and protectionism – retooled in modern form.

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