China has become the world's largest auto exporter. $9,200 equivalent US dollars. Chinese automakers are going to come here eventually, and they're going to do it regardless of if there's a tariff or not.
40 years ago or so, the Chinese auto industry barely existed. Today, the country makes enough cars to supply half the world. I call it the Great Godzilla.
The world has never seen an auto industry of this size scale. This is a giant machine just getting ramped up, and it has its eyes on the United States, which, thanks to China's rise, is now the second largest car market on the planet. There are no Chinese car brands for sale in the US at the moment, although a few other ones like Volvo, Polestar and Lotus are Chinese owned, but insiders say it's only a matter of time.
The country has been ramping up exports to offload overcapacity. Surveys indicate a large share of shoppers, especially younger ones, would be happy to buy a Chinese car despite concerns over privacy, etc. .
But not everyone shares the enthusiasm. President Biden slapped Chinese automakers with stiff tariffs, effectively doubling the price of a Chinese export EV, which can otherwise be at least as cheap as $11,500 within the auto industry. Opinions vary, but many say tariffs might not be that effective in the long run and may do more harm than good.
So what are the alternatives? We asked some industry insiders to find out for the Detroit three, for Toyota, for Hyundai to compete well against these Chinese brands. It's going to take something more than simply raising the tariff from 25% to 100%.
I'm not exaggerating when I say what China that the challenge that China is presenting the world, including the United States, is unprecedented. You know, in the case of the Japanese and Koreans, when they came into the United States, we were able to persuade, maybe coerce a little bit. Hey, if you want to sell here, you have to build your transplant here.
But they could own it. And they were our allies, and ultimately they were more dependent on us than we were on them. They were more in China's case.
We don't have that kind of leverage with them. China has the capacity to make half the world's cars four times as many as the US typically makes. Annual demand within the country is about 25 million units.
That leaves 15 million cars for export, nearly as many as the US can sell in a good year. China sent 5 million cars to over 100 countries in 2023, making it one of the largest exporters in the world. You see Chinese cars now in virtually every market except for the United States and Canada.
And because there's so much capacity at home and the market at home is has a price war, the Chinese automakers themselves are super motivated to get out and push their products into Europe. The United States, a mix of favorable policies and a booming economy got them to where they are today. China welcomed foreign automakers into the country beginning in the 1980s, and especially after some policy changes in the following decade.
Rules were simple foreign firms could sell cars in the country as long as they partnered with a local Chinese automaker. Chinese firms also made some cross-border investments. Chinese automaker Geely bought Volvo cars from Ford, for example.
And finally, many companies are government owned and even private firms receive generous subsidies. Ev maker BYD received $3. 7 billion between 2018 and 2022.
For example, in state capitalism, the objective is we're going to build a world powerhouse auto industry to get there. We need great companies. But oh, by the way, at the local, provincial and federal level, we'll also offer all kinds of help.
So the Western automakers look at that and say, how in the world do we compete? But Chinese companies have also built strong products. When they came to the Detroit Auto Show 15 years ago, their cars were not competitive.
You could see the quality issues with those vehicles as you sat in them, as you played around with them. Now those cars are much higher quality. They are very competitive.
Once they hit the ground and they pay attention to all the configuration of every seat in the car, not just the driver's cockpit. Uh, that's what I think. Obsoletes the traditionally designed in style vehicle.
Bill Russo, a former Chrysler executive, says the Chinese have been extremely successful in developing new business models based around software and services. Many recent entrants have backgrounds in technology, electronics and mobile devices markets. When the iPhone came, the Nokia products went away quickly.
That's what's happening in China now in the car business, American consumers are also receptive to Chinese cars. Nearly half of respondents in a recent survey said they are familiar with Chinese vehicle brands, and 76% under the age of 40 said they would consider buying a vehicle from a Chinese brand. Consideration then declined significantly by older age group.
Grappling with this new reality. Tariffs have become a popular political tool, especially with former President Trump beginning in 2018. Auto executives at the time, famously, Tesla CEO Elon Musk decried what they considered an imbalance between US and Chinese trade rules.
Lately, it is the Biden administration who is focused on tariffs first and foremost. Ev's tariffs on them will increase from 25% to 100% in 2024, the administration says. China's extensive subsidies and non-market practices have led to substantial risks of overcapacity.
Chinese EV exports grew 70% from 2022 to 2023. They're also raising tariffs on an array of materials used in car making lithium ion batteries, graphite, magnets, steel, aluminum and semiconductors. China controls more than 80% of certain segments of the EV battery supply chain, the administration said.
That leaves US supply chains vulnerable and risks national security and clean energy goals. Some politicians are pushing for even harder restrictions. The industry's response is mixed.
Labor leaders are in support, for obvious reasons. So is the Alliance for Automotive Innovation, the auto industry's major trade association. Tesla CEO Elon Musk criticized the tariffs, but even he had said earlier in 2024 that without trade barriers, most Western automakers would be demolished by Chinese competition.
They can sell EVs cheaper than the cheapest fuel burning cars and, according to some, are way ahead of competition in software and tech. But Rousseau is skeptical of tariffs. The Trump era trade war may have been a missile aimed at Beijing, but it landed squarely on Detroit, he once wrote.
Two things happened. First, the trade war drove up the costs of a lot of parts American automakers sourced from China or elsewhere. Gm and Ford both reported that the Trump tariffs in 2018 saddled them, each with an additional one dollars billion in steel and aluminum costs.
Secondly, it likely accelerated the globalization of Chinese companies looking to circumvent trade rules by making investments beyond their own borders. They're building factories in Mexico. They're building factories all over the world Africa, Middle East, Europe, Eastern Europe, Western Europe, Southeast Asia.
There's never been a bigger, uh, effort by China to decarbonize its supply chain than right now. If elected, Donald Trump pledged to place a 100% duty on any car made in Mexico by a Chinese company. Policy analysts say doing so would violate the terms of the very agreement Trump made with Mexico.
It might also cause further friction with the country, which in 2023 became the US's largest trading partner. In any event, executives like Rousseau argue that these measures are delaying the inevitable. American firms need to face up to the fact that Chinese companies have extremely competitive and attractive products, and American consumers want them.
If you can make aspirational products affordable with configurations that surprise and delight the users of that platform, that's a universal value proposition. And sorry, Americans buy Chinese stuff and have been for decades have been enjoying the benefits of that in terms of affordability forever. If you shut that off, all you're going to do is make it more expensive.
There are alternatives. Take a page from what China did 30 years ago when it was just starting out and it said, hey, you want to come into our market? The United States welcome.
But by the way, in order to sell here, you have to manufacture here, you have to build plants here. And when you manufacture here, you have to form a joint venture with an American company that will own half of the business. Oh, okay.
And by the way, we'd like you to export from America, too, so that we get extra benefits of you being here. We could do the same. That's called flipping the script.
The problem isn't that we have to keep them out. The problem is we should let them in to give ourselves the benefits of the DNA that they've been able to create. And then.
But do it under a guided process, do it with policies. And right now, nobody's writing those policies, nobody's writing policies that allow some of the benefits of globalization and scale and product configurations and technologies to flow back to the Western world. And that's going to really weaken the it's not going to help the industry.
It's going to weaken the industry. If we if we don't allow that to happen. And even though there are no Chinese branded cars for sale in the US yet more than 100 Chinese owned automotive companies have a presence in the United States already.
They are concentrated in Detroit and Silicon Valley, and there are Chinese auto suppliers scattered across 30 US states. But you'd never know it because we don't see Chinese cars on American roads, so it doesn't occur. No.
What? That can't possibly be true. But it is.
They're here. They're getting ready for the time when it's right to enter and sell their cars to Americans.
