On August 5, President Biden issued an “Executive Order on Strengthening American Leadership in Clean Cars and Trucks,” making a push for electric vehicles (EVs) in the United States. While some Chinese firms may see this policy as benefiting Chinese companies who are part of the EV supply chain, the policies that come with this Order may make such benefits harder to achieve. This is part of a continued effort in the United States to create a resilient supply chain that would exclude China, and could further intensify competition between the United States and China in the EV sector.

The August 5 Order outlined a general policy goal of making 50 percent of U.S. auto sales zero-emission by 2030, and set out specific details on regulatory rule-making. Chinese investment bank China International Capital Corporation and securities company Everbright both suggested (link in Chinese) that this policy would enhance overall demand in the EV and upstream raw materials markets and benefit Chinese companies who participate in this supply chain.

But this new U.S. policy, partially motivated by the Biden administration’s objective of tackling climate change, is also intended to outcompete China in this sector, where China has become a major player. The White House Fact Sheet noted that the new plan is aimed at “positioning America to drive the electric vehicle future forward, outcompete China, and tackle the climate crisis.” The fact sheet highlighted that “China is increasingly cornering the global supply chain for electric vehicles and batteries with its fast-growing electric vehicle market.” Therefore, it sets out areas for more government support, including $3 billion of funding from the Department of Commerce for the electric vehicle industry, which would “strengthen U.S. leadership in electric vehicles and batteries.”

The administration’s investigation into China’s role in the global EV supply chain is part of a broader effort on supply chain repatriation. In February, President Biden issued the Executive Order on America’s Supply Chains,” to kick off a 100-day supply chain review for four high-tech sectors, including high-capacity batteries, such as the ones used in electric vehicles. Other sectors under review were semiconductor manufacturing and advanced packaging, strategic and critical minerals, and medical supplies.

On June 8, the White House released its final report on the 100-day supply chain review, titled “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth.” The report noted that “China and the European Union (EU) … have developed and deployed ambitious government-led industrial policies that are supporting their success across the battery supply chain,” and “China has also moved beyond conventional policy support with practices involving questionable environmental policies, price distortion through state-run enterprises to minimize competition, and large subsidies throughout the battery supply chain.” “China has positioned itself as a market leader in the manufacturing supply chain,” the report stated.

A fact sheet associated with the June supply chain report was very explicit about the U.S. concerns over China’s dominance in supply chains. It noted that “China, using state-led, non-market interventions, captured large portions of value chains in several critical minerals and materials necessary for national and economic security. China accounts for an outsized share of the world’s refining capacity, meaning that even if the United States were to diversify our sources of critical minerals or increase domestic extraction, we would still be reliant on China for processing before use in end-product manufacturing.”

According to a 2021 USITC report on the supply chain for EV batteries, the United States imported more EV batteries from Japan and South Korea than China in 2019, but nevertheless China’s dominance in the EV battery market has long raised concerns in the west.

To address vulnerabilities in this supply chain, the Biden administration announced several measures in June to “secure an end-to-end domestic supply chain of advanced batteries,” including a 10-year government plan developed by the Department of Energy (DOE) for a domestic battery supply chain, and a $17 billion loan managed by the DOE’s Loan Programs Office to finance key areas. It also highlighted the importance of a “comprehensive trade strategy” with China to support supply chain resilience. More actions from Congress, such as funding and tax incentives, may be coming (see here and here).

The U.S. EV industry has gained some traction with sales this year and has more room to grow. Right now EVs account for 3 percent of all auto sales in the United States. Compared to the EU (31 percent) and China (44 percent), the U.S. market has a small share (17 percent) of the world's 10 million EVs, according to the Pew Research Center. And EV sales in the United States have not risen as fast (17 percent) as in the EU (60 percent) or China (36 percent) over recent years.

Both the EU and China have policies in place to promote EVs. China recently extended (link in Chinese) its EV subsidies through the end of 2022 and issued a Development Plan (link in Chinese) for the EV industry, setting a goal of having approximately 20 percent of new auto sales be EVs in 2025, “significantly enhanced” competitiveness of the EV industry, “major breakthroughs in key technologies such as power batteries, drive motors, and vehicle operating systems,” and “comprehensively improved safety level” by 2025. If the Biden administration is serious about competing in this sector, we are likely to see both more EV sales and an intensified area of trade conflict.

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