Are EVs made in China good for our economy?

By John Alty

Thursday 16th May

Electric vehicles (EV’s) are rarely out of the headlines these days. Last week, President Xi of China was in Europe, and the question of Chinese electric vehicles (EV’s) was high on the agenda, as the EU struggles to compete with the low priced Chinese imports. This week it’s the US imposing 100% tariffs on imports. How the UK should handle this thorny issue?

In 2005, as the ailing MG Rover car company cast around for sources of funds and a potential buyer, it sold the MG brand to Shanghai Automotive (SAIC), as part of what it hoped would be a rescue package.

The rescue never came – Rover was losing too much for the Chinese to swallow – but SAIC ended up owning the trade mark MG. Most people in the UK probably thought that was the last they would hear of it.

Fast forward 20 years and MGs are everywhere on roads across the UK: affordable electric vehicles (EVs) manufactured by SAIC which are rapidly gaining market share, alongside other Chinese brands such as BYD.

What’s not to like? The UK has a long history of both exporting and importing cars. The Japanese singlehandedly more or less rescued a moribund UK industry in the ‘80s by investing in Sunderland (Nissan) Derby (Toyota), and Swindon (Honda), galvanising the rest of the industry to respond. Already a number of EV battery factories in the UK are Chinese owned.

But as Xi’s visit and the US tariffs highlight, international alarm bells are ringing about China’s pre-eminence in the manufacture of EVs. China’s EV capacity has increased massively over recent years, undoubtedly with central Government support. Their cars are cheaper than European or US EVs and they also have very good access to the rare metals need for the batteries, which are a high proportion of the car’s value. Western Governments – especially the US and the EU – fear that their own industries could be decimated by rapidly rising Chinese imports. The EU has launched an investigation into unfair competition as a result of Chinese subsidies (though there are tensions within Europe as many EU car companies have major investments in the burgeoning Chinese car market). In the US, despite the tariffs, Tesla is also a major investor in China and Elon Musk was there recently to celebrate agreement to take forward work on driverless vehicles.

Some politicians especially in the US argue that there are security concerns about excessive reliance on Chinese imports and that the software systems in the cars could either be manipulated or be used to gather information on users to the benefit of the Chinese state.

At the same time commentators point out that take up of EVs is sluggish and stopping people buying cheaper EVs is not exactly helpful in the context of achieving net zero. Moreover, the Chinese are not unique in putting subsidies into EVs.

So, where does the UK’s interest lie?

Traditionally the UK has been a more open market for imports and investment than either the US or the EU. The UK’s statutory framework for considering action against unfair imports lays emphasis on the so called “economic interest” test. This means that decision makers should consider the overall UK interest – that includes consumers (car owners) and downstream industries (those dependent on transport), and the producers who might be hit by cheap competition. The overall UK interest also includes the net zero benefits of greater take up of more affordable EVs.

At the same time the UK should consider the impact of allowing subsidised imports on particular regions of the UK – for instance, if competing manufacturers are concentrated in one part of the country. Furthermore, since the UK benefits overall from a rules based system for international trade, there are risks in allowing flagrant breaches of those rules to go unpunished.

I don’t have the facts to judge where exactly the balance falls in this particular case. So far no UK businesses have complained about Chinese EV imports and there is no UK official investigation. However, if the EU and US effectively stop or slow Chinese imports, the UK could be a bigger target and pressure might mount on the Government to take action. This is what happened over Chinese steel imports.

The overall economic and climate benefits point to taking a relatively open approach towards Chinese EV imports. That’s not to say there might not be specific concerns which would need addressing. However, in general, it will be in the interests of the UK to find ways to manage these concerns, by encouraging investment into the UK and avoiding punitive tariffs, so as not to lose the beneficial effects of affordable EVs.


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