US, EU prepare for trade war with China on Electric Vehicles as auto demand patterns change


Its been obvious for some time that Europe and the USA were likely to push back against China’s decision to boost its manufacturing exports.

And now the starting pistol is close to being fired for the start of a trade war.

The immediate cause is China’s plan to ramp up Electric Vehicles (EV) exports:

  • China’s EVs are cheap and would support the achievement of Net Zero targets
  • Western automakers have forgotten how to make $25k cars, and are only now rushing to catch up
  • The problem is that it will take them years, rather than months, to reorganise
  • Whilst they are retooling, China’s imports might wipe out the US/European auto industries
  • And these are responsible for 8.3% of all European jobs and support 4.5% of all US jobs

Trading jobs for cheap consumer goods wasn’t a problem in the 1990s. Then the USA and Europe were happy to outsource textile and other industries to China. But that’s not true today.

SO WHAT’S THE CORE PROBLEM?

The chart from the World Bank sums up the core issue:

  • China’s domestic consumption has fallen, rather than risen, since joining WTO in 2001
  • It was just 37% of GDP in 2022
  • US consumption has been rising and is ~70% since 2000 – nearly double China’s level

Essentially, therefore, the USA has been acting as the ‘consumer of last resort’ in recent years.

This certainly provided US consumers with cheaper goods. But it also hollowed-out critical supply chains. And it failed to ensure that trade was a two-way street.

Essentially, China has chosen to over-invest in manufacturing exports and infrastructure. And Chinese consumers have effectively ‘paid the bill’ – in the form of lower wages and consumption.

CHINA IS LEADING THE WORLD IN EV SALES

China is leading the world in terms of EV sales as the chart shows.  Its EV sales will likely reach 50% of the market at times this year.

But this is election year in the USA and EU. So politicians are starting to react to the “threat” from Chinese EV exports:

In response, state-owned China Daily has already suggested the proposed barriers are:

“A pretext (to) poison the environment for China’s domestic development”.

MAJOR CHANGE IS COMING TO THE AUTO INDUSTRY

A trade war isn’t the only challenge about to hit the auto industry.

Google-owned Waymo is already operating robotaxis successfully in San Francisco and Phoenix, as the photo shows. And it is planning to launch commercial services soon in Los Angeles and Austin.

Meanwhile in China, robotaxis are also taking off very quickly in major cities including Beijing.

By September last year, they had driven 44m miles (70m km) in both the USA and China. As the Financial Times reports:

“Baidu, China’s rival to Google, recorded more than 730,000 ride-hailing trips last year. That compares with combined orders of more than 700,000 last year in Phoenix, San Francisco and Los Angeles, according to Waymo.”

So as the chart suggests, it seems that the world is now moving from today’s “Continuous Instability” into “Growing Disruption”.

Real wars are already escalating in Europe and the Middle East.  Trade wars are beginning. And Demand Patterns in key industries such as autos are starting to change very rapidly.