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Electric vehicles become key elements in a trade war with the West - when, where and how does it end?

While EVs - electric vehicles - may yet one day remembered as rage of the 2020s, their impact on international trade has been considerable.

Britain's Jaguar Land Rover Ltd and China's Chery Automobile Co have earlier this summer partnered to form a new joint venture to develop EVs. Of course, EVs are nothing new. Those of a certain age, can recall them as a common sight in London in the '60s and '70s.

There were a posh Harrods green delivery vans with their nostalgic 1920s bodies, as well as the more utilitarian, not to say ubiquitous, electric milk floats that trundled through the streets at a cool 10-16 miles per hour.

It should be recalled that at the turn of the last century - 1900 - there were two schools of thought regarding dirigibles versus fixed-wing aircraft. Not that blimps or dirigibles have disappeared since, but they never played the dominant role once imagined for them by leading writers of the time.

Much the same could be said for EVs before the current craze. Less noticeably, the Harrods delivery van has retained its handsome olive green livery, but they look like other such vehicles on the road. Sadly, the electric milk float went the way of the dodo bird and stay-at-home mums with the end of universal morning milk delivery in the '80s.

For the moment, the EV is a major component in the brewing cold war between China-Russia on one side and the Anglospheric nations and their Western allies on the other. Uncannily, each bloc corresponds to George Orwell's dystopian novel "Nineteen Eighty-Four" with Oceania on one side and Eurasia and Eastasia in an uneasy alliance on the other. While the EV has majority support among the denizens of the Deep State, it enjoys nothing like that for the vast majority of the motoring public.

Republican minority leader Mitch McConnell thought the words of a Kentucky constituent summed up the attitude of most. "I don’t want to be in court fighting a governmental agency. I just want to sell and service the cars and trucks my customers want. Right now and for as long as I can see, my customers don’t want vehicles that our government requires them to buy. They don’t want vehicles that are not affordable, can’t be reliably re-charged, and can’t be depended upon to make the drive from Richmond to Lexington on a below zero
midnight in January."

But EVs are still hot. And there are enough upmarket consumers to keep them that way. The European Union and the United States are enacting serious tariffs aimed at Chinese EVs that are surging out of China and flooding into markets around the world. China EVs are being sold in Mexico and Brazil.

China EVs are efficient and high-tech, but there are questions about the real cost structure of these companies and the extent to which subsidies from local governments in China have allowed these companies to manufacture these cars at such a low cost.

Then there is the hard ball question, about dealing with the consequences of allowing these cars to establish a solid firm foothold in Western markets; local auto manufacturers stand to be hurt badly - if the trend keeps trending and doesn't fizzle as the fad fades.

While no one's hands are clean in export finance, there are some whose hands are dirtier than others. Local EV makers in China get huge financial benefits from local governments. This creates an uneven playing field by other countries with a private auto industry that does not receive similar support.

The China auto market must deal with the fact that auto production now far exceeds demand at a time when the Chinese economy is faltering. This means that China auto companies have no choice if they wish to sell all their cars, but to export them, regardless of what the profit is. This is part of the over-capacity problem that Chinese officials say does not exist.

Former President Donald Trump fired the first salvo in the tariff war after China, when Beijing made it clear the reciprocity was not on the table. American companies do not have the kind of access to the China market that China companies have in the United States, and ultimately there was a consequence to that.

Such is of little concern to consumers, who simply want a want a good product at a good price and overall, Chinese EVs are good quality, although there are indications that the Western consumer prefers the hybrid idea, where there is both a battery and a gasoline option. This is especially true in colder climates such as northern Europe and North America, because freezing weather really does impact on the performance of battery powered cars.

Some question whether tariffs that have been fixed are enough to deter the Chinese manufacturers from shipping their cars to Europe and the United States. It could well be that there is still a profit margin, even at the levels currently set, which may mean there will be further increases in tariffs, particularly if these economies are serious about protecting their local manufacturers and offset the impact of subsidies back in the middle kingdom. The Chinese government, of course, views such tariffs with distaste and tit-for-tat response must be expected at the very least.

Western auto brands, VW, Audi and Ford are all doing poorly in the China market these days, says China Economic Review. The days when China could provide to these companies a massive margin to offset business fading elsewhere, are gone.

Curiously, Tesla EVs are not allowed anywhere near high-level China government meetings. All of the China EVs are well supplied with advanced electronics, and so whatever the reason, Teslas are limited to certain places and certain times in China, this should be considered by other foreign EV makers before entering Chinese markets.

In the present-day EV and related carbon craze, it is harder to see a trend - as a trend - when it is trending at its height. There are today some two billion internal combustion powered vehicles today, and just 30 million EVs. By 2035 the number of EVs is expected to reach 400 million, that is a 20 per cent of the total, still a fraction of what is on the road.

Another factor to consider is the high-volume, widely expressed, bureaucratically driven calls to accelerate the "energy transition". All appeals are for more regulations compelling this and forbidding that. One is compelled to note that the development of the internal combustion engine was much in demand from the start. There were no state programmes, no mandates, no subsidies or onerous regulations. This is not the case with EVs.

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Electric vehicles (EV) have become the latest component in the growing trade war between the West in China. When and how will it all end?

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Mediterranean & Africa
Trade Specialists