Costa Ricans are building their dreams with cheap Chinese cars
Canada has imposed 100 percent tariffs to keep out BYD and other producers
It is one of the besetting sins of traditional journalism that opinion writers are discouraged from ever admitting they’re not sure about something. No-one wants to read waffle and the result is columnists sound more sure of everything than most people do about anything.
Just as defence lawyers maintain the innocence of even the most obvious scoundrel, so too do pundits sound more confident on any given subject than the facts warrant.
That’s part of the reason I started up this Substack - to hear different voices and admit encyclopedic ignorance on things about which I may have professed conviction.
Take electric vehicles, I recently railed against the Canadian government’s decision to follow the Biden Administration and impose a 100 percent tariff on Chinese vehicles.
Finance minister Chrystia Freeland talked about an “intentional state directed policy of overcapacity” by Beijing and the government has warned about “significant risk” to privacy and national security posed by technology in Chinese cars that could collect information on drivers and hack communications needed to keep connected vehicles operational.
That sounded like a good excuse by oligopolists to limit competition and keep prices high. I argued that if the Chinese government wants to subsidize Western consumers and help with our transition to net zero, then let them. Car buyers would simply spend the money elsewhere and the economy would benefit.
Yet, in the real world, the Canadian auto industry is responsible for half a million jobs directly and indirectly, contributing $18 billion a year to the economy. The North American auto industry considers the influx of cheaper Chinese cars to be “an extinction level event”, and rightly so. Based on what we’ve seen elsewhere, those jobs would be at serious risk. And does anyone seriously doubt that the Chinese have the capability to encrypt a means of causing gridlock by shutting down their cars remotely?
I remain committed to free trade and open markets but in this case I am conflicted. What do you think? Let me know in the comments.
What is clear is that the Chinese are going to dominate the global auto industry, even with punishing tariffs. Their producers like BYD (Build Your Dreams), Chery and
Greely are already responsible for 18 percent of global sales, ahead of U.S. carmakers and not so far behind the Japanese, according to a Jato Dynamics study.
Costa Rica, where I’m now living, offers a perfect case-study of what is happening outside the high tariff walls of North America and Europe.
The Americans have been very successful at keeping the Chinese out of Costa Rica, a country that occupies an important strategic position but has no army and a hostile northern neighbour in Nicaragua. It is seen as a dependable democracy in a dodgy neighbourhood. “(Beijing’s) Belt and Road Initiative is not happening in Costa Rica,” said one U.S. official, who pointed out that the government in San José recently blocked Huawei from supplying the infrastructure for its 5G network.
But the Americans have had little success in keeping Chinese autos out of the country. The Ticos know a bargain when they see one and have bought into the idea of cheap, quality cars, packed with technology, that have allowed many people in middle and low income groups to buy their first vehicle. The import value of Chinese cars in Costa Rica has risen 10 fold in just five years and is now worth more than double that of American cars. In part, this is because there is five year partial exemption on customs duties for electric vehicles and the Chinese have specialized on that part of the market.
In the past month, I have seen three new Chinese vehicle brand showrooms open in my corner of San José. It’s a short street that doesn’t have somewhere you can buy a US$20,000 BYD Seagull electric vehicle.
It is easy to see why. At the upper end of the market, I bought a new Hyundai Palisade seven seater last year but could have purchased a Chery Tiggo 7 Pro for around half the price.
I was squeamish about the security concerns and resolved not to buy Chinese. But I would have had no quality worries. I rented a Chery SUV before buying the Hyundai and took it on one of the most gruelling drives in Costa Rica - up into the mountains to Monte Verde Cloud Forest. It passed with flying colours.
It’s unclear how long China can continue to flood the market. Part of the price differential is based on economies of scale - the Chinese market buys 22 million cars a year - and part because the average autoworker in Shanghai earns the same in a year as a Canadian autoworker earns in a month. But companies like BYD, the world’s biggest maker of electric vehicles, has been bankrolled by the state through cheap loans, equity injections and consumer financing. China also controls 70 per cent of the world’s lithium-ion battery market and has underwritten battery production to the tune of US$4,000 a car, by one estimate.
Such state largesse will come to an end eventually, although probably not until many of China’s Western rivals are in bankruptcy.
In the meantime, Ticos will continue to enjoy their cheap, connected cars - at least until Beijing decides to disconnect them.
Certainly goes against the climate emergency the federal government is constantly going on about. They insist that western energy workers will have to switch to good paying green economy jobs. Why can’t eastern autoworkers transition to the same while everyone benefits from cheap EV partially funded by the Chinese government?
Excellent article, a perspective not heard enough from inside the tariff wall. Part of the Chinese EV story that is not being written about is the technology. Not in the cars, not the cars themselves - which are both ahead of the game - but how they are made. The Chinese car factories are significantly more automated than Western ones. In fact when companies like BYD build factories in places like Mexico they dumb the factories down, as a matter of state policy, and hire more workers. If we only credit the Chinese lead on EVs as a matter of state policy and cheap labour Western companies will never be competitive, and the tariffs will become permanent protectionism.