Europe Learns Its Electric Cars Will Be Made in China.

"Ironies abound in our evolving love-hate affair with the electric car, and September delivered a couple of doozies: Europeans believe in climate action more passionately than Americans do, and yet Europe's political battles over electric vehicles will be far messier than what's brewing in the U.S. This is because Europe -- yes, that Europe -- also apparently believes more fervently in the free market than America does.

These uncomfortable truths lurk behind the announcement this month that the European Commission will weigh possible new tariffs on EVs imported from China.

Despite several decades of political promises to the contrary, the green transition threatens to become a job-killer in developed economies. Cars are a case in point. Europe is home to a large and prosperous automotive industry that accounts for around 10% of manufacturing value added across the European Union and up to 23% in some countries in Central and Eastern Europe. But the industry is set up to be profitable in light of the unique set of raw materials, supply chains, labor costs, energy expenses and trade policies that go into manufacturing a modern internal-combustion auto.

EVs will be tougher. Brussels expects Europe will import from China 15% of the EVs Europeans buy by 2025. Price is a crucial advantage for China, which has partially to do with labor costs, partially with availability of raw materials such as rare-earth metals, and, yes, partially with Beijing's industrial policy.

This shouldn't matter, since European factories churn out at competitive prices the gasoline and diesel autos the buying public still wants. Except that European politicians are using a bevy of consumer subsidies and blunt-force mandates to force the public to buy the product Europe isn't producing as competitively. So don't be surprised if China's share of Europe's EV market grows dramatically owing to China's cost advantages, as Europe's proposed EV mandates reach deeper into middle- and lower-income households where the price of a car will matter more.

Europeans' underlying complaint with this situation is that Europe isn't America. Washington has more global-reserve-currency funny money to throw at industrial subsidies for EVs and everything else. EU governments lack the financial resources to subsidize their own industries directly in the same way. They also increasingly worry about the politics of subsidizing EV manufacturers by forcing households to buy more-expensive EVs in greater quantities.

Washington also has fewer scruples than Brussels about free markets and free trade. This shamelessness allowed the Biden administration and congressional Democrats to bake enormous trade-distorting EV subsidies into the Inflation Reduction Act, such as local-content rules that condition consumer EV tax credits on buying vehicles made in America.

The EU's commitment to relatively freer trade means it already imposes lower tariffs on auto imports than the U.S. does. And longstanding EU rules would make it almost impossible to impose buy-Europe provisions. Changing these rules would be no small matter because trade liberalization, to a degree not understood by the EU's American critics, is one of the few threads holding the EU together.

With subsidies and buy-European mandates out, an EU tariff on Chinese EVs would mark an attempt to fix in another way the interaction between Western subsidies for buying EVs and Beijing's subsidies for manufacturing them. Alas for Brussels, it's unlikely to work.

What China actually has is a Euro-American EV industry on Chinese soil. Around half of the EVs China exported in the first half of this year were manufactured by Tesla or by joint ventures between European auto makers and Chinese firms. The majority of new EV registrations in Germany, to cite one example, are either the products of these firms or sold under makes such as MG or Volvo with Chinese ownership but European roots. Finding a legal method to apply a tariff to EVs produced by solely Chinese manufacturers while exempting all the others probably isn't possible but will keep trade lawyers busy for years in the attempt.

Eventually, it will dawn on someone that the simplest way to protect European auto jobs is to allow consumers to buy the industry's best products. Europe might get there faster than the U.S. because the fiscal and free-trade constraints are simply too tight to do otherwise. The U.K., now outside the EU, led the way earlier this month when Prime Minister Rishi Sunak dialed back London's mandate that all new cars be EVs by 2030.

Yet precisely because politicians have whipped up such popular enthusiasm for climate action -- and have already asked taxpayers and utility customers to sink so much cash into the endeavor -- this return to sanity will be painful. Mr. Sunak's Conservative Party is tearing itself apart over its erstwhile net-zero pledges. A European EV tariff might buy time for other leaders to attempt a smoother policy pirouette, but time is all it can buy -- not more Europe-made EVs." [1]

After Communists left Lithuania, capitalism bloomed. Some of the new companies produced poor quality goods. Lithuanians called them: "Produced in a cellar" (sklepo darbas in Lithuanian). This is how the world will meet American EVs, produced without knowledge how to scale contemporary technology and without trained workers. All the world is buying Chinese EVs. Your shitty subsidies are small compared with this. Bottom line: China wins, the West is left behind in EVs, and nothing could be done about it already. 

1. Europe Learns Its Electric Cars Will Be Made in China. Sternberg, Joseph C.  Wall Street Journal, Eastern edition; New York, N.Y.. 29 Sep 2023: A.17.