If you had a vision of the future where China did not dominate the global car industry, you can kiss those dreams goodbye.
That is because US President Donald Trump’s promised 25 percent tariff on auto imports takes an ax to the only bits of the emerging electric vehicle (EV) supply chain that are not already dominated by Beijing.
The biggest losers when the levies take effect this week would be Japan and South Korea. They account for one-third of the cars imported into the US, and as much as two-thirds of those imported from outside North America. (Mexico and Canada, while still swept up in the tariffs, would be partially exempt.)
Illustration: Yusha
They are also crucial to the development of EVs, because South Korean and Japanese companies produced more than one-quarter of all EV batteries last year, making them the only serious challengers to China’s near-total dominance of the market.
US and European businesses barely figure, especially since the bankruptcy earlier this month of the most serious contender, Sweden’s Northvolt AB.
If you want to bring manufacturing jobs back to the heartlands of the US, landing a blow against these two Asian allies is a strange way to go about it. South Korea was the biggest foreign investor in new projects in the US in 2023, signing off on US$21.5 billion of greenfield plants.
Meanwhile, Japan has spent decades assembling the largest portfolio of foreign direct investments in the US, with US$783 billion of assets, about 15 percent of the total.
Former US president Joe Biden’s push to establish a non-China clean energy supply chain had been turbocharging that relationship. South Korea’s LG Energy Solution Ltd, Samsung SDI Co and SK On Co have promised US$54 billion to set up a constellation of 15 battery factories stretching from Michigan south to Georgia.
EV batteries have accounted for more than half of jobs brought back to the US since 2021, according to a report last year by the Reshoring Initiative.
General Motors Co, Ford Motor Co and Stellantis NV have all tied up with one or other of the three South Korean companies to build their EV batteries, while Tesla Inc is working with Japan’s Panasonic Holdings Corp. If the US auto industry is to have an electric future, as its top executives insist, it is going to need these Asian businesses to succeed.
However, as we saw during the COVID-19 pandemic and its aftermath, global supply chains are held together with threads of gossamer. With the latest tariffs, Trump has driven a monster truck straight through this one.
Korean and Japanese battery makers, after all, are not just making cathodes and anodes for Detroit. Instead, they are integrated into domestic auto industries that would struggle to survive without exports. Hyundai Motor Co and Kia Corp make more money in the US than in their home market, and their US plants are capable of assembling barely one-third of the 2 million cars they sold in North America last year.
Devastate the profits of Korean and Japanese automakers, and the battery makers who depend on them for revenue would be the next to suffer. Those companies usually have profit margins in the single digits at best. What is more, they are already struggling as their larger Chinese competitors such as Contemporary Amperex Technology Co (CATL, 寧德時代新) and BYD Co (比亞迪) extend their lead in lithium iron phosphate, a better-value type of lithium-ion battery that is rapidly taking over the EV industry, and announce breakthrough innovations such as five-minute charging.
Ill-considered trade restrictions have a nasty habit of coming back to bite their instigators.
Trump’s March 2018 tariffs on steel and aluminum cost the US US$4.6 billion a month in higher costs and tax losses by the end of the year they were introduced. Former US president Barack Obama’s 2012 levies on Chinese solar panel manufacturers sparked a retaliation that killed off US production of solar polysilicon, a crucial raw material that US companies had once dominated. We are about to see that scenario play out again.
To Trump, smashing up the remnants of one of Biden’s signature clean energy policies is a feature, not a bug of these tariffs. Among his first executive actions were moves to tear up rules pushing carmakers to electrify their fleets, pull funding for EV charging, rescind car fuel-economy standards and roll back environmental regulations on tailpipe emissions.
Analysts and shareholders in Detroit might even welcome the shift in the short term. Pulling back on the billions of capital spending and research and development still required for electrification would mean more money for investors over the next three years or so. Protectionism is a great way to boost short-term profits.
However, it is not a route to win the long-term game. Right now, the US and its allies are far behind as the global auto industry goes electric.
By smashing up the links holding the delicate non-Chinese supply chain together, Trump is guaranteeing a future where Beijing rules the road.
David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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