Trade War Watch 18: DetNews Fumbles With The Saber

Just over one week ago, a Detroit News piece pointed me towards a letter written by Senators Carl Levin and Debbie Stabenow, which took China to task for considering draft legislation that might possibly require more technology transfers to Chinese companies as a precondition to market access. Having chased down both the letter and the US National Trade Estimate it was based on, as well as several reports on the draft legislation itself, I wrote a lengthy piece about how Senators Levin and Stabenow were rattling the saber about what appeared to be a complete non-issue. In that piece, I not only debunked the senators’ concerns, but I also pointed out that China’s local consumer EV subsidies were the far more worrying potential trade barrier, as we have been hearing that they require that all qualifying EVs be built in China and sold with Chinese brands (a condition at odds with at least the 2004 version of China’s Auto Industry Development Plan, which stated “local governments should encourage fair competition among motor vehicles made by different places on the local market. They are not allowed to carry out any discriminative policy or measure which may lead to discrimination against non-locally manufactured automobile products.”). And it turns out that my 2,000+ words didn’t put everyone to sleep, as a new DetNews piece re-reports the Stabenow/Levin letter with the inclusion of a new motivation never mentioned in their actual letter, to wit:

For electric or plug-in vehicles to qualify for incentives under the proposed rules, they must be produced in China — by a Chinese carmaker or in a joint venture with a Chinese company

Ignoring for a moment that this wasn’t explicitly mentioned in the letter, there’s another issue here: subsidies aside, building any car in China requires a joint-venture. More importantly, China need not establish any barriers to the sale of imported plug-in or hybrid cars for the simple fact that the Toyota Prius’s epically weak sales there prove that imported NEVs can’t compete in the market. Of course subsidies may change that, but even more important is the issue of registration limits: if China requires EVs to be locally-made in order to waive Beijing’s registration restrictions, that could create more of a barrier than any cash subsidy. Meanwhile, neither Daimler nor Toyota nor VW nor BMW seems to have a problem with building EVs locally under a JV (cost and supply chain make Chinese production the logical choice anyway, necessitating a JV). The DetNews (and presumably Senators Levin and Stabenow) are getting closer to understanding the problems with China’s New Energy Vehicle Plan, but it seems they may yet have some more TTAC reading to do.