When Green Industrial Policy Collides
A central tenet of Bidenomics has been green industrial policy: funding a clean-energy transition through policies that steer jobs and industry to the United States. That economic philosophy presumes that the goals of a rapid clean energy transition and domestic industrial revival can generally be pursued in tandem.
But what happens when they can’t — when green policy and industrial policy collide? That tension has re-emerged recently thanks to incredibly cheap Chinese electric vehicles coming on the market. In the New York Times, Robinson Meyer of Heatmap News warns that EVs from Chinese auto companies like BYD could soon land America’s Big Three on life support:
“BYD’s cars deliver great value at prices that beat anything coming out of the West. This month BYD unveiled a plug-in hybrid that gets decent all-electric range and will retail for just over $11,000.”
That’s a fraction of the prices charged by Ford, GM, and Stellantis for their EVs. That price differential would swamp the Inflation Reduction Act’s $7,500 tax credit incentive to buy domestic EVs. So to give American automakers a runway to build up their EV capacity, Meyer writes, “[s]ubsidies most likely won’t be enough; Mr. Biden will need to impose trade restrictions” against a flood of cheap Chinese EVs, at least in the short term. Indeed, just days ago, the Biden administration launched a national security investigation into Internet-connected EVs produced in China, which has the effect of blocking them from the U.S. market.
From a pure climate perspective, ridiculously affordable EVs ought to be a godsend. As Vox’s Dylan Matthews put it:
“We are in a situation where we desperately need to transition away from fossil fuels. It’s an ideal situation, in other words, for cheap foreign-made electric cars.”
To Matthews, the Biden administration is putting anti-China nationalism over the exigencies of climate change. “It has proven shockingly willing to sabotage its own climate policy if it gets to stick it to the Chinese in the process,” he writes.
But perhaps it’s not so simple. There’s real risk for the energy transition in ceding EV dominance to China. As David Dayen of the American Prospect writes, “[T]he EV market is gradually becoming an ecosystem in the U.S.” And that’s precisely what we need to cultivate to secure the shift to clean energy:
“[I]t’s inescapable, not just to preserve domestic industry but to preserve the transition more broadly. We have too many people to get by with just BYD and a couple other car companies. U.S. automakers, and those automakers with plants in the U.S., have to survive.”
That is, the temptation of low-cost Chinese EVs could backfire on the energy transition. The need for a reliable EV supply is too great to let China undercut domestic companies and own the market.
Last year, David Roberts of Volts asked then-Biden economic adviser Brian Deese whether the domestic incentives in the IRA’s EV credits would “slow down the spread of EVs in the US” by “putting a speed bump, basically between us and … adoption of EVs [when] from a climate perspective, you just want to lower emissions as fast as possible, as much as possible, the cheapest, fastest way you can.” Here’s Deese’s defense of the nationalist structure of the EV credits:
“I actually think that to have a durable, effective climate strategy that also operates with the urgency that the issue deserves, you have to factor in this concept of resilience or you’re not going to succeed across longer periods of time. And I think the upstream solar supply chain example that we were just discussing illustrates that. If the idea into the current global market with the reality of how China and other actors operate, is that a narrow, fastest, cheapest without any factoring in anything else mentality results in China dominating key input components. To the degree that there is no other producer, then it’s not a durable strategy to reduce emissions over the time period that we need to do this.
Because even as we act with urgency, this is a project that is going to operate across the next two decades and longer. And so I think that you need to have strategies that are focused on driving down those costs as quickly as feasible, but factoring in that cost reductions into brittle and unreliable supply chains are not actually going to deliver those cost reductions in a reliable way over longer time frames.”
That’s the Biden administration’s theory: that our clean-energy strategy must sustain a level of resilience for a transition that will be waged over decades, not years. The pandemic was a formative experience, hammering home how risky it was for the U.S. to find itself in a position of near total dependence on China for essential inputs like semiconductors and critical minerals. Lockdowns, disasters, regional instability, and geopolitical rivalry convinced many U.S. policymakers that we must proactively secure our economic independence from risky trade partners like China.
And of course, it’s not just supply-chain resilience at stake, but political resilience. Michigan, home of the auto industry, is the swingiest of swing states in the 2024 election. It is no more politically tenable to “let Detroit go bankrupt” (as Mitt Romney once called for) in the 2020s than it was in 2008. A course of action that crumbles America’s automakers is a recipe for massive economic dislocation in the Midwest and an embrace of Trumpist fossil-fascism that would devastate nascent climate efforts.
The political resilience built into Biden’s green industrial policy may pay more affirmative climate dividends as well. As I wrote in Heatmap, “align[ing] … economic muscle with the climate change fight has made the IRA politically resilient.” The law does that by financing battery plants and clean-energy facilities throughout the country, in congressional districts, that (a) makes it that much harder for Republicans to repeal the law, and (b) generates a constituency of communities and workforces with a vested economic interest in sustaining clean-energy policy.
So as counterintuitive as it may seem, there may be good long-term green political economy reasons to embargo BYD from U.S. shores in order to generate a competitive homegrown EV industry. But that embargo need not be indefinite or without strings attached. Meyer suggests putting U.S. autos on notice that trade restrictions on Chinese EVs will be temporary so that they “feel the chill of death on their necks and be forced to rise and face this challenge.”
And for any second auto bailout, whether stealth or explicit, we ought to learn the lessons of the first one. Lenore Palladino explained in a paper for the Roosevelt Institute that because insufficient guardrails were attached to the auto bailouts during the Great Recession, much of the public rescue package redounded to the benefit of corporate shareholders at the expense of workers and other social imperatives. Imagine where we’d be now if instead of taking a largely hands-off approach, the government had used its ownership stake in GM to direct the company toward greater and earlier investment in EVs back in 2008!
The public ought to receive something in return for supporting the auto industry, whether through subsidies or trade policy. Palladino recommends that public support for the auto industry be conditioned on policies like worker representation on the Big Three’s corporate boards, restrictions on stock buybacks, and government equity stakes in the companies. Skeptics may worry that these conditions would be counterproductive by further disadvantaging a beleaguered industry. But if adopted carefully, these kinds of reforms would help promote important public purposes around the EV transition, and would offer some reassurance to autoworkers who are anxious over what the EV transition means for their long-term job prospects.
Ready or not, EVs are the future. The only question is whether they will be produced abroad or in the United States. Maybe BYD’s low-cost marvels will rip through the American market, slashing emissions in the process. Or maybe TikTok-loving Americans will somehow blanch at the thought of driving cars made in China, at least initially. For now, BYD evidently is not interested in entering the “confusing” U.S. market. Keeping Chinese companies out of the U.S. may mean foregoing emissions cuts out of the gate. But in the long race against climate change, a little slower but much steadier green industrial policy may ultimately be what prevails.
