China builds and exports more electric vehicles (EVs) than any other country. But, so far, no cars built by Chinese automakers are available in America today.
That status could change soon, a major trade group warns. And it could be devastating for America’s auto industry.
Manufacturing Group Alarmed
“The introduction of cheap Chinese autos — which are so inexpensive because they are backed with the power and funding of the Chinese government — to the American market could end up being an extinction-level event for the U.S. auto sector,” writes the Alliance for American Manufacturing (AAM).
A consortium of manufacturers and the United Steelworkers union fund the group. The AAM’s mission is to “strengthen American manufacturing and create new private-sector jobs through smart public policies.”
Related: Chinese Automakers Inch Close To American Market
Mexico as a Commercial Backdoor
The Inflation Reduction Act of 2022 included provisions to promote EV manufacturing and supply chains in North America. The act created federal EV tax incentives up to $7,500 to help Americans buy EVs but requires automakers to reduce materials and parts sourced from China every year until 2028 or lose the discounts.
Last week, the AAM released an analysis concluding that American policy has left a “commercial backdoor” through Mexico.
Chinese automakers control a growing portion of the Mexican market – Chinese cars outsold American cars in Mexico in 2023. Several Chinese automakers have opened or plan to open plants in Mexico.
The AAM says those facilities would allow Chinese firms to “access the United States by way of the more favorable tariffs under the United States-Mexico-Canada Agreement.” Depending on how the federal government enforces Inflation Reduction Act rules, Mexican-built cars from Chinese firms might even qualify for EV tax credits.
Even if they don’t qualify, the lower costs available to Chinese automakers might enable them to sell EVs at low prices that cost Americans less than domestic models with credit access — even without the tax credit.
Related: Chinese EVs Are Coming, And They’ll Be Cheap
Chinese Firms Could Leapfrog Industry
The group cites an analysis from consultancy Horizon Advisory. Horizon found that “Beijing focuses on the EV industry as a leapfrog domain.” Horizon explains that the Chinese government believes traditional automakers will maintain dominance over gas-powered car production, while the shift to EVs will provide an opportunity to leap over them and dominate the industry after most of the world has transitioned.
Reuters reports, “A bipartisan group of U.S. lawmakers has urged the Biden administration to hike tariffs on Chinese-made vehicles and investigate ways to prevent Chinese companies from exporting to the United States from Mexico.”
The AAM report makes 11 policy recommendations. They include a request that the U.S. impose “exclusionary tariffs” on Chinese automobiles and ensure that production rules consider where a company is headquartered, not just where cars are built.
