EVs and the Paradoxically Promising Future of Global Trade
Chinese automaker BYD’s triumph over Tesla is just the beginning. Global trade is quickly moving away from free-trade orthodoxy, as a new era of protectionist policies and endless bargaining unfolds – with mixed consequences.
China’s BYD just passed Tesla in the race to lead the electric vehicle revolution. And as the world awaits word on who will be the next president of the United States, many see EVs as a canary in the coalmine, and worry about how the election will shape the future of global trade.
Spoiler alert: probably not much.
BYD as National Champion
China’s push into the EV business has been aggressive to say the least. Last week BYD reported revenue of $28.2 billion for the third quarter of 2024 – an increase of 24% compared to 2023, and significantly more than Tesla’s $25.2 billion. Almost all those sales were to domestic Chinese consumers, aided in large part by a $2,800 government subsidy for each internal combustion engine vehicle traded in.
Meanwhile, tier suppliers of critical EV componentry, including batteries and essential minerals, plus an ecosystem of charging stations, are achieving such levels of maturity that half of all cars sold in China this summer were either hybrids or pure EVs. The biggest carbon emitter in the world is hurtling toward an all-electric future, almost entirely on home-grown technology.
Let’s Make a Deal
All this success has certainly caught the attention of trading partners. The EU last week initiated an increase in EV tariffs that varies based on the subsidies each carmaker is believed to receive – up to 35.3% on top of an existing 10% duty for China’s SAIC Motor. BYD, by comparison, is only getting tagged for an extra 17% on top of the original 10%, perhaps because they are planning new plants in the EU or Turkey. Even Tesla is being saddled with an extra 7.8% for cars assembled in its Shanghai plant.
What is clear from all this wrangling is that global trade, especially in vital sectors like automotive, semiconductors, and alternative energy technologies, is quickly moving away from classical free-trade orthodoxy. It’s against this backdrop that the US is today choosing between one candidate, Kamala Harris, who promises to maintain the Biden administration’s selective but aggressive industrial policies; and another, Donald Trump, who has repeatedly warned the world that tariffs are his favorite bargaining chip.
These policy shifts among rich Western countries come in reaction to openly state-sponsored industrial favoritism everywhere from China to India to Canada. Free trade is being replaced by a sort of global bazaar with market access the object of endless bargaining.
The efficiencies of global supply chains will give way to the expediency of regional supply chains as dealmaking in global trade forces business to localize sourcing and production to avoid getting whacked with crippling tariffs.
Who Pays for the Lost Efficiency?
Political debate in the US has been heated this past year, with supporters of both candidates painting victory by the opposition as a cataclysm. Many worry that Trump, who immediately withdrew from the Trans Pacific Partnership upon taking office in 2017, will be a disaster for global trade. Harris makes less noise, but her promise to build up the middle class is sure to include protectionist policies.
The problem runs deeper than most consumers realize. Trade barriers limit customer choice not only at retail, but upstream where sourcing teams look for materials and components to keep final product costs competitive. A rising wave of protectionism hinders supply chain efficiency, and in the end, consumers bear that cost.
And yet consumers are voting for it all over the world.
BYD Is a Bellwether
No value chain is more complex, asset intensive, or financially challenging than automotive. China’s ambition to seize leadership here could be the first volley in a new era of global trade for a multipolar world. If China’s leaders can sustain the world’s biggest EV industry despite a trade war, we might be closer to regionalized supply chains than economists believe.
Technology megatrends in AI, robotics, and nuclear energy, plus the need to tackle climate change, mass migration, and aging populations, could be a forcing function that ultimately delivers sustainable, localized supply chains for the long run.
BYD may be the model to learn from as we enter a new era in global trade.