China has become an electric vehicle export behemoth. How should the US and EU respond?
On Thursday, US President Joe Biden announced that he has directed the US Department of Commerce to conduct an investigation into the potential national security risks from imported Chinese vehicles. The announcement follows comments made by US Commerce Secretary Gina Raimondo at the Atlantic Council on January 30 about several specific concerns. Modern vehicles contain a multitude of sensors that could aid Chinese intelligence services in collecting data around sensitive US facilities, such as military installations. These sensors could also enable collection of other data, such as real-time economic and mobility data. “Do we want all that data going to Beijing?” Raimondo asked at the Atlantic Council.
Raimondo also emphasized the sheer number of electric vehicles that China is exporting. Indeed, China has become a battery electric vehicle (BEV) export behemoth. Europe has become the top destination for Chinese BEV exports, for now, and exports could continue to rise due to cost reductions and synergies with China’s shipbuilding complex. Responding to these dynamics could prove challenging for the United States and Europe, given the competing priorities of decarbonization, economic goals, and the mitigation of security risks.
Working with allies and partners, the United States should adopt a joint, balanced approach to Chinese BEV exports by following pragmatic interim guidance while comprehensively studying the security risks these vehicles could pose. These interim steps should include preventing Chinese-made electric vehicles with sensors from reaching locations sensitive to US and allied security, such as military installations, and restricting them altogether from Guam, Okinawa, and other places relevant to Taiwan and South China Sea-related contingencies. Such interim measures would help keep the United States and its allies secure while the risks that Chinese BEVs ultimately pose are determined.
Chinese BEV exports to Europe are surging
China’s overall BEV exports rose 70 percent in 2023, reaching $34.1 billion. The European Union (EU) is the largest recipient of Chinese BEV exports, accounting for nearly 40 percent of them. Other European countries (Albania, European Free Trade Association members, North Macedonia, Ukraine, and the United Kingdom) held a 15 percent share of Chinese shipments in the same year.
China’s growing BEV shipments to Europe have vastly increased its share of the European market. Chinese manufacturers’ share of the Western European new BEV passenger car market stood at 9.3 percent in the fourth quarter of 2023, an astonishing rise from 2019, when China’s share in the total European BEV market only reached 0.5 percent.
In the Western Hemisphere, China’s exports to Mexico are worth watching carefully, as the country often serves as a backdoor to the US market. Still, Chinese BEV exports to Mexico are minor, totaling only $257 million in 2023, less than Canada, which imported $1.6 billion over the same period. In other words, there is greater risk of BEV trade “leakage” to the United States from Canada than Mexico—at least for now.
What about plug-in hybrids?
The above chart does not include China’s exports of plug-in hybrid electric vehicles (PHEVs), which use batteries to power an electric engine and fuel to power an internal combustion engine. In 2023, China’s exports of PHEVs totaled $4.3 billion, or around just one-eighth of BEV exports that year. Many Chinese plug-in hybrids in 2023 went to Brazil—and to Russia, via both direct and indirect trade. Kyrgyzstan’s reported imports of Chinese plug-in hybrids reached $651 million in 2023, or about 5 percent of its gross domestic product at current prices. While Kyrgyzstan is notionally the third-largest importer of Chinese-made PHEVs, it is a near certainty that some of these shipments were in fact destined for another country, as Central Asian countries, especially Kyrgyzstan, often serve as a waypoint for Chinese exports ultimately bound for Russia.
The United States is a significant purchaser of plug-in hybrids, but it’s not currently purchasing many Chinese-made models either directly or indirectly. Chinese PHEV exports to parties of the United States-Mexico-Canada (USMCA) trade agreement totaled only $132 million in 2023.
The Chinese electric vehicle tsunami hasn’t hit the US—yet
Indeed, Chinese-made electric vehicles haven’t played a sizable role in the US market, at least not yet. China directly shipped just $368 million in BEV exports to the United States in 2023. Conversely, the EU exported nearly $7.4 billion to the United States that year, according to official US trade data.
The United States doesn’t currently import Chinese BEVs at scale largely because it places a 27.5 percent tariff on Chinese-made cars, along with other restrictions. Still, this tariff may not ultimately prevent Chinese autos from reaching the United States.
Chinese BEVs are already significantly less expensive than Western autos. Chinese automaker BYD’s Seagull, for instance, sells for only twenty thousand dollars in Latin America, while China’s electric vehicle producers are currently engaged in a price war with one another. China’s electric vehicle producers are competitive due in part to genuinely impressive innovations; synergies with China’s industrial capacity, including its shipbuilding sector; and economies of scale. But massive subsidies from China’s national, provincial, and even local governments are also an important factor.
Furthermore, Chinese auto exports will soon no longer be constrained by insufficient transoceanic carrier ships. BYD, in tandem with CIMC Raffles of Yantai, launched China’s first car carrier built specifically for the purpose of exporting Chinese-made autos. Earlier this week, thousands of BYD vehicles were unloaded in Germany on the first of eight ships commissioned by the company. The state-run People’s Daily reported earlier this year that a single company, the Chinese shipping giant COSCO, has ordered twenty-four large vehicle carriers.
China’s shipbuilding sector and industrial capacity should not be underestimated: China’s civilian shipbuilding production stood at 49 percent of the global market share in the first eight months of 2023. Working together and reinforcing each other, Chinese electric vehicle producers and shipbuilders will enable the country to ship more autos abroad—including, potentially, to the United States.
Additionally, Chinese autos might make their way to the United States via investments in third countries, especially Mexico. Not only does Mexico border the United States, but it is also deeply integrated into USMCA supply chains. Case in point: General Motors, Ford, BMW, and Audi are all currently producing electric vehicles in Mexico. China’s BYD is reportedly scouting locations to build production facilities in Mexico, then export the vehicles across the border into the United States in order to avoid tariffs.
Barring a policy response, it is likely only a matter of time before China’s electric vehicles will be well positioned to enter the US market either directly via export or indirectly via re-exports from, or investment in, third countries such as Mexico.
Managing a flood of Chinese-made electric vehicles
Chinese exports pose dilemmas for policymakers on both sides of the Atlantic. Electric vehicles help accelerate decarbonization and may already be more economically competitive than traditional internal combustion engine vehicles. But leaving Western electric vehicle supply chains in the hands of a formidable rival poses obvious economic and strategic risks.
Chinese electric vehicle exports to Europe face increasing pushback on economic and security grounds. The European Commission, citing unfair subsidies, has launched an investigation into whether China’s BEV value chains receive subsidies that are illegal under global trade rules.
Washington, Brussels, and other capitals should engage in a comprehensive and thorough evaluation of the risks of Chinese BEVs to determine where Chinese-made automobiles do—or do not—pose risks. In the meantime, US and allied policymakers should take some interim measures to mitigate these risks.
For starters, Chinese BEVs with sensors should not be allowed near sensitive locations, as the video and imaging capabilities of these electric vehicles could enable real-time, on-the-ground surveillance. Consequently, Taiwan should continue to restrict inbound shipments of mainland Chinese-made electric vehicles, especially those with sensors. Chinese electric vehicles should also not be allowed in Guam and should be restricted around other US and allied military installations.
Chinese manufacturers and China’s foreign ministry may grouse about any restrictions on BEV exports. These objections can largely be dismissed, as the Chinese government has itself imposed restrictions on Teslas. Still, Chinese automakers will find it in their long-term self-interest for Western countries to determine the rules of the road. If Western countries can determine where Chinese BEVs do not pose risks, it would create greater certainty for trade and investment.
Chinese-made electric vehicles pose a thorny dilemma for Washington and Brussels, with complicated trade-offs. Policymakers do not have a lot of time, as Chinese exports appear set to rise sharply amid their domestic price war and a growing transoceanic car carrier fleet. While Washington, Brussels, and other capitals need to comprehensively examine the security risks of Chinese BEV imports, interim risk mitigation measures are appropriate until the totality of the costs and benefits are better understood.
Joseph Webster is a senior fellow in the Global Energy Center and the editor of the China-Russia Report. This article reflects his own personal opinion.
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Image: The ''BYD Explorer No. 1'' car carrier, loaded with new energy vehicles, is setting sail from Yantai Port in Yantai, China, on January 10, 2024. (Photo by Costfoto/NurPhoto)