For once it is possible largely to agree with what the Chinese had to say about it, characteristically blunt and bellicose though it was.
The European Union, China’s ministry of commerce said, was guilty of “a naked protectionist act” in launching a subsidies investigation into China’s electric car industry.
In her annual state of the union address, Ursula von der Leyen, President of the European Commission, made it abundantly clear that Chinese EVs are very likely soon to be subjected to punishing EU tariffs and other forms of import restriction – all possibly dressed up under the catch-all of a carbon border tax.
China’s all-out assault on the global market for EVs is admittedly a matter of some concern, with tens of thousands, possibly millions, of jobs riding on it. But when the EU’s first response to industrial competition is to reach for the protectionist playbook, you know that this is an economy in serious trouble. Protectionism is for economic losers, not winners.
Yes, of course China has been heavily subsidising its EV industry, which it sees as an important alternative driver of economic growth now that it has exhausted the old rocket boosters of an unrestrained construction boom. We all know this. In that sense, there is nothing to investigate.
After the debacle of solar panels, moreover, the EU has good reason to worry. Having stolen the original technology from Germany, China now dominates the global market for solar energy. Nobody else gets a look in.
But though late to the party, the EU, the US, and even the UK in its own penny-pinching way, have also all been lavishing government subsidies on “green” industries, including EVs. State aid rules have been thrown to the wind in supposed pursuit of energy transition goals.
Yet sadly, the Chinese have stolen a march, and are already ahead of the game. Europe has been caught napping, having failed properly to think through the industrial, economic and geopolitical implications of its dash for net zero.
There is no denying China’s breathtaking double standards in tapping into Europe’s confusion. On the one hand it ruthlessly exploits the self inflicted harm of Europe’s commitment to early phasing out the internal combustion engine, while on the other it fails to abide by the same climate change targets itself, and moreover hugely adds to the global emissions problem by expanding the coal-fired generation it needs to fuel mushrooming EV production.
One rule for us, it seems, and a different one for them.
But is this sufficient reason to block Chinese competition? On the basis that almost anything proposed by Von der Leyen is bound to be wrong alone, we can safely say that protectionism is not the solution. Britain must be ultra careful not to get caught up in Von der Leyen’s delusions.
Going by the name of Rose Ladson when studying at the London School of Economics, and also known simply as UVL, Von der Leyen is a kind of living caricature of the Brussels machine – clever, charming, multilingual, liberally minded, hugely well connected and plausible, but also entitled and essentially useless with a string of failures and calamitous misjudgments to her name.
She would never have been commission president in the first place but for the fact that she messed up so badly as defence minister in her native Germany that it destroyed her chances of succeeding Angela Merkel as German chancellor, a position she once seemed predestined to occupy.
So she was put out to pasture in Brussels instead, where theoretically she couldn’t do any more harm. No such luck. Her handling of Europe’s Covid vaccine rollout was a case study in mismanagement and incompetence, culminating in a completely crass attempt to use the Northern Ireland Protocol to stop AstraZeneca complying with its contractual obligations to the UK by diverting product to Britain.
No matter; Von der Leyen floats effortlessly from one blunder to the next as if none of it were her fault, which in a sense it isn’t. It would tax the wisdom of Solomon to deliver effective policy in a union of 27, often fractious, member states – soon to be swollen to an even more unmanageable 30, and eventually 35.
Yet by giving way to French pressure for protectionist measures, Von der Leyen has not only upset the Chinese but even many of her own countrymen back home in the industrial heartlands of the Rhine. German carmakers, most of which sell heavily to China and have extensive operations there, are understandably furious.
Conscious that a trade war would hit business in China, Mercedes-Benz has broken cover to condemn the move as counterproductive, while Bosch, the world’s largest automotive supplier, said that a race for punitive tariffs and trade barriers would only have losers.
Here in Britain, protectionist measures to safeguard our car industry are even less appropriate. Government policy is firmly focused on maintaining some kind of an automotive sector by helping carmakers transition to EVs, and there have indeed been some minor successes. BMW has announced it is to build an all electric version of the Mini here in Britain, and buttressed by lorry loads of government money, Jaguar Land Rover has announced plans for a £4bn electric battery plant.
As for Chinese marques – within reason, let them come. All competition is good, and if they force UK manufacturers to up their game, so much the better. As things stand, many Chinese models are both cheaper than most European counterparts and superior to them, so why would you deprive British consumers of these benefits? Let’s just take the Chinese subsidy, and use it to our own advantage.
There are admittedly two obvious objections to the purity of this free-trade approach. One is that if the EU continues down its protectionist road, but the UK doesn’t follow suit, Britain might become a dumping ground for China’s excess EV production.
Furthermore, an open borders policy might further increase Britain’s economic dependence on China, raising further security concerns around a potentially hostile power. And once China had monopolised our market by undercutting and closing down the local competition, it could then whack up its prices and milk the UK economy accordingly.
Yet these concerns ought to be manageable, and it is a matter of fact that if Chinese automobile companies want any kind of a long-term future in British and European markets, they will eventually have to invest heavily in them, rather in the same way as Japanese car manufacturers did in the UK under Margaret Thatcher.
On that note, it is about time that Elon Musk’s Tesla started ponying up with some significant investment in the UK, where it sells almost as many cars as Germany.
In any case, having left the EU, it would be perverse to simply mirror its vulnerabilities by cowering behind high protectionist walls. We must remain as open as possible, even to China.