China Highlights Imbalance in U.S. Economic Security Strategy

Over the past four years, the Biden administration introduced a series of China-focused trade and investment restrictions to bolster economic and national security. Now that the Trump administration has inherited—and is expected to build upon—this toolkit, it should take stock of how China has acted in response thus far. While attention is trained on Beijing’s swift riposte in the opening salvo of another brewing trade war with Washington, a more fundamental task at hand is to fortify resilience holistically, ensuring that economic retaliations cannot weaken the very supply chains that U.S. defensive measures seek to protect in the first place. The previous administration’s approach to electric vehicles (EVs) provides an illustrative example of this challenge.

Protections on EV manufacturers outweigh those afforded to the rest of the supply chain. While security and trade imperatives led the former president to forbid Chinese-made vehicles, strict rules that buttress a singular part of the industry have rendered other segments easy targets of more pointed retaliation. On Jan. 14, the Commerce Department finalized its rule to prohibit passenger cars equipped with select software and hardware of Chinese origin. This followed the U.S. trade representative’s new Section 301 tariffs on Chinese imports, notably the quadrupling of levies on EVs to 102.5 percent. The two policy instruments work in tandem to close the U.S. market to all Chinese cars, whether they run on batteries or internal combustion engines.

These measures are intended to forestall security and economic problems that could arise from a larger presence of Chinese auto imports. In 2023, American consumers bought about 104,000 units of Chinese-made vehicles, accounting for only 0.67 percent of the total sale volume in the United States. But it has become difficult to discount possible Chinese interference through digitized transport, such as internet-connected vehicles, given intensified cyberespionage and the securitization of bilateral relations. The Commerce Department’s regulation is intended to preempt the challenge early on in anticipation of these risks.

Similarly, the tariff hike seeks to proactively safeguard the efficacy of domestic EV investments through the Inflation Reduction Act (IRA). Central to the program’s agenda are the desires to spur energy transition, restore manufacturing jobs in that process, and free strategic goods from undue reliance on China. In the two years since the IRA took effect, qualified auto industry projects received around $14.5 billion worth of federal funding and EV buyers another $1.5 billion in tax credits. In addition, robust public financing has helped turn the U.S. into a more attractive destination for clean-energy capital, catalyzing private investments five to six times the federal expenditure.

Read the full article on Lawfare.