Scratch a progressive, and you sometimes reveal a protectionist.
Progressive journalist Robert Kuttner writes:
China has begun selling cheap electric cars in the U.S. These are deeply subsidized, when you count all the government subsidies to China’s auto industry, the oppressed labor, and China’s protectionism.
These cars include the Polestar, made by China’s Geely Auto Group, and the K27 made by China’s Kandi—with a sticker price of $17,499. That’s less than half the cost of the cheapest U.S.-made electric vehicle.
His August 18 piece is titled “How China is Grabbing Our Electric-Car Market.” He makes clear that he thinks this is bad. He goes on to write:
The EV tax credit is industrial policy and energy policy. The Biden administration hopes to convert the U.S. to all-electric cars, and to restructure the U.S. auto industry accordingly. But at this rate, the prime beneficiary will be China.
He then concludes:
We can’t duck this issue: Industrial policy is China policy. We need to bite this bullet and limit the credit to cars made in the USA—and address all the other ways that China’s mercantilism challenges the future of U.S. industry and technology, as well as our national security.
What’s wrong with his thinking? A lot.
Take the first quote, the one about China’s subsidies. If it’s true that the Chinese government is forcing people to work to produce these cars, then yes, it is implicitly making workers subsidize production and, therefore, consumers, whether here, in China, or wherever the cars are sold. And that is wrong.
I wonder if it’s true. I don’t know. I bet Kuttner doesn’t either. It’s also wrong for the Chinese government to tax its own people to subsidize auto production, just as it’s wrong for the U.S. government to tax us to subsidize EV production.
But let’s be clear who the victims are. It’s not U.S. consumers; we gain. It’s Chinese taxpayers. Should we decline to receive this foreign aid? I don’t think so.
And it’s hard to see how China’s protectionism amounts to a subsidy to Chinese-produced cars. If the protectionism is on inputs into car production, then China’s protectionism is a tax on Chinese-produced cars.
Now look at the next quote. The prime beneficiary is not China; it’s buyers of Chinese cars worldwide. As Kuttner himself points out in the first quote, these cars are priced way below U.S. EVs and so we in the United States, and probably elsewhere, gain.
Kuttner’s last quote is a real stretch, and deeply ironic as well. If he’s right about the subsidies, then he’s right that China’s policy is mercantilist. It does challenge certain domestic industries but more than makes up for it by subsidizing U.S. consumers. It’s hard to see why changing the mix of EVs to include more Chinese cars threatens our national security.
And the irony? To deal with the Chinese government’s mercantilism, Kuttner advocates subsidizing only U.S.-built EVs. In other words, mercantilism.
READER COMMENTS
Thomas Lee Hutcheson
Aug 19 2021 at 6:55am
Common problem when you tax or subsidize something indirectly related to your objective. We want less CO2 emitted but subsidizing a particular technology, electric vehicles v fossil fuel vehicles is a mistake. We should be taxing the CO2 emission more directly.
Alan Goldhammer
Aug 19 2021 at 7:37am
There is a history of China subsidizing industries to gain a foothold in US markets. It happened in the furniture industry (good read here is Beth Macy’s “Factory Man” about John Bassett III’s fight against Chinese subsidies; it ultimately worked but too late to save much of the US furniture business.)
One can always make a bet on the Chinese EV car by purchasing some Berkshire Hathaway stock as the holding company has a large stake in BYD which is one of the leading companies over there and has cutting edge batter technology. (disclosure: I’ve owned Berkshire stock for a lot of years).
David’s money quote from above:
Roger Sparks
Aug 19 2021 at 2:47pm
When China sells those cars in the USA, it gets genuine U.S. fiat dollars in return. It seems to me that it is getting a product that has a longer lifespan than the cars it sells.
Now if China spent this money every year on American made products, we could have a balance of trade. Presumably, American and Chinese workers would simply be trading labor and resources back and forth in a somewhat equal-value fashion.
However, if both nations are funding their buying (or selling) with newly created fiat currency, then it becomes impossible to determine ‘true value’ for any products exchanged. There is simply no logical or theoretic natural relationship of value between two fiat currencies.
There is only a ‘market value’ which can be manipulated by central banks for much longer periods of time than you might expect.
Felix
Aug 20 2021 at 9:18pm
Here’s some news you can use: dollars out have to equal dollars in, unless the Chinese are literally burning those dollar bills or wallpapering their homes. Those dollars they get are only good for buying dollar-priced goods. No matter how many side trips they make through other economies, they are worthless without the expectation that they will eventually buy American goods.
And if the Chinese government wants to throw away those dollars? What problem is that for us?
Lizard Man
Aug 19 2021 at 10:36pm
I am pretty certain that the making of civilian engines and vehicles is essential to making engines and vehicles for military use. The US could very well get into a real war with China in the next couple of decades, in which case trade between the US and China, and perhaps trade between China and much of the world would cease. So allowing any militarily important domestic industry to atrophy is pretty foolish, as that would certainly be used against the US as a leverage point. Allowing any economically important industry to be located beyond areas that you can rely upon provides others that kind of leverage, which is one of the fundamental rationales behind the “Made in China 2025” campaign.
One way to avoid going to war with China would be for the US to proclaim that it would support the PRC were it to invade Taiwan and dispatch the ROC. The problem with that is that TSMC has the most important semiconductor foundries in the world, and the disruptions caused by an invasion would cause a very deep global recession.
So there aren’t any pat libertarian solutions to the problems that the rest of the world faces due to China’s rise. The best thing to do is to try to deter the PRC as much as possible from seeking a military solution to the issue of Taiwan.
Matthias
Aug 22 2021 at 2:31am
The libertarian approach is to stay out of the way as much as possible.
That includes allowing (and being very explicit about allowing) companies to charge whatever they want (including ‘price gouging’) in order to encourage them to build strategic stockpiles.
Those stockpiles will encourage them to profit from any supply disruption, but will also soften the blow of any supply disruption.
If you want to add an extra fallback, open up immigration, and perhaps reform the tax system. That might encourage semiconductor companies (and others) to set up shop. Being able to bring in foreign talent easily can be a bit draw.
(About the tax system, the Georgists have some good ideas that are very compatible with libertarian thinking.)
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