House Select Committee on the Strategic Competition Between the US and the Chinese Communist Party Expresses Concern to US Trade Representative
Earlier this year, China surpassed Japan to become the world’s biggest exporter of cars. Reports show that China exported 1.07 million vehicles in the first three months of 2023, up 58% compared to the same period in 2022, whereas Japan’s vehicle exports stood at 954,185, having only increased 6% from first quarter 2022.
Following these reports, on November 8, 2023, Chairman of the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party (CCP) (“the Select Committee”), Mike Gallagher (R-WI), and Ranking Member, Raja Krishnamoorthi (D-IL), sent a letter to US Trade Representative Ambassador Katherine Tai with concerns about the CCP’s potential plan to flood the US market with automobiles, particularly electric vehicles.
The letter highlights as a threat the Chinese automakers’ ability to leverage an “unlevel playing field in their home market,” which in turn allows these automakers to expand into global markets. Specifically, the letter alleges that China “has given its homegrown automakers an unfair competitive advantage” through the provision of “discriminatory government subsidies and preferential market access policies[.]” The lawmakers claim that, meanwhile, China has also pressured “foreign automotive firms to localize and transfer their core technologies” to Chinese companies. The letter claims electric vehicle exports from China have increased by 851% in the last three years. While most of those exports were to Europe, the lawmakers express concern that the Chinese auto manufacturing market could turn its focus to the United States. The letter demands “urgent action” to counter the perceived unfair practices of China and “ensure that US automakers and auto workers” have a level playing field on which to compete.
The letter further alleges China used its “state-led economic model” to control nearly 76% of the global battery cell production capacity, which allows Chinese electric vehicle manufacturers to build these vehicles at lower prices. The letter also claims that Chinese auto makers have been able to operate at a loss, with one firm receiving at least $2.6 billion from the Chinese government, thus offsetting its $835 million loss in one quarter alone.
The letter argues that the US has yet to see an influx of Chinese electric vehicles because these vehicles do not qualify for tax credits under the Inflation Reduction Act, and because of the additional 25% tariff on vehicles imported from China. The two lawmakers emphasize that the additional 25% tariff must remain in place in order to protect the US industry. That said, the letter cautions that, with continued government financial backing, Chinese automakers may be able to absorb the cost of the 25% tariff, and thus begin to flood the US market. For that reason, the lawmakers request that the Office of the United States Trade Representative (USTR) consider increasing the tariffs, and even launching a new Section 301 investigation into China’s alleged subsidies, localization, government financing, and other policies that have led to the significant increase in Chinese vehicle exports. The letter also noted that China may attempt to circumvent the tariffs through methods like transshipment and overseas production in third countries. The Select Committee asked for a USTR response as to whether the current rules of origin within US trade agreements need to be strengthened and what other US policy tools are needed to address China’s access to the US market.
What action the USTR would take in response to the Select Committee letter, if any, remains unknown. Meanwhile, this development demonstrates that new energy, including the electric vehicle industry, continues to be an area of contention in the bilateral economic relationship.
1 https://www.bbc.com/news/business-65643064 (May 18, 2023).
3 https://selectcommitteeontheccp.house.gov/media/press-releases/gallagher-krishnamoorthi-issue-warning-surge-prc-automobile-exports-and-ccps (Nov. 11, 2023).
4 https://selectcommitteeontheccp.house.gov/sites/evo-subsites/selectcommitteeontheccp.house.gov/files/evo-media-document/11.7.2023-letter-to-ambassador-tai-auto-301.pdf (Nov. 7, 2023).
