Plug-ins: China primed to crush the Big 3 and the US
China will take that.
One way or another China will dominate EV production
“I am outraged that the Chinese government is considering plans to force foreign automakers to give up proprietary electric vehicle technology to their Chinese competitors in order to be allowed access to China’s market,” Rep. John Dingell, Michigan’s senior member of Congress, wrote to the Chinese ambassador to the US today.
Yet, with the biggest, still growing, auto market in the world, plus all the rare earths needed for battery technologies, not to mention about $1 trillion in US treasuries, China is completely in the driver’s seat.
Today, China could shut down rare earth exports and force all hybrid and electric cars to be produced in China for most of the next decade, as it will probably take about that long to both start rare earth metal mining in other countries and, more important, develop rare earth metal refining capabilities.
Likewise, companies like GM might face limited profitability if not able to compete in China, where the Buick brand sits atop Chinese sales.
Even worse, just a few days ago a Chinese think tank warned the US that it will lose in a trade war, and since China owns almost $1 trillion in US treasuries – not to mention a successful GM IPO might require significant Chinese investment – they might be right.
Might it not be time to focus on other interim solutions apart from electrification until the US can better manage the supply chains needed to plug-in the US infrastructure, such as weight reduction and alternative fuels? Even worse, is an aggressive move towards plug-in vehicles nothing short of a frothy bubble, at least in America, and a sure path to Chinese domination of the world’s auto industry?
I dont usually post on many Blogs, still I just must give you thanks keep up the astonishing work. Ok unfortunately it’s once again time to access school.
Maybe we should, if that’s our long term advantage. Like nuclear detente, each side has to play its hand aggressively now and then to keep the other side in check.
The larger economic questions are beyond me, however, in terms of the auto industry, I think China has played a pretty aggressive card that deserves an equally aggressive response.
The pieces you have put together on China are really eye opening. Really good work. I wouldn’t be surprised if you are a few years ahead of the media on this story.
The funny thing is that just how you’ve had to read up on MIT energy studies to find any answers to the questions you’ve been raising about plugins, you’re probably going to have to read Foreign Policy white papers on China to find any more data on the concerns you are raising about China.
I still wouldn’t worry about a trade war with China any time soon. They are VERY dependent upon foreign markets. I wouldn’t be surprised if Western countries instigate a short term trade war themselves once they realize, if you are correct, how well China is playing the long term game.
whereas i am purely focusing on the auto industry.
i’ve been following the rare earth story ever closer and closer. a few years ago, i found it interesting, at best. over time, however, the story has become a bit more compelling, especially China’s actions on exports, which to a large extent, seem justified and in no way political. however, it’s the way china has moved forward, almost as if part of a plan, and certainly not playing their hand too early.
china starts reducing rare eart exports, followed by plans to make a big green push, followed by increased reduction of exports, followed by plans to provide massive tax credits of chinese-made green cars, followed by trade war warnings from china, followed by the final ‘auto’ plan that suggests that doing business in china will require free secrets and a majority share of foreign interests to chinese-owned automakers.
perhaps it was all just coincidence and just happened to all come together, but the execution seems preconceived, as if part of a big plan. and that’s where I worry. i don’t think this is the end. it’s just part of a long term plan – the kind of plan that is very hard to execute in a divided america. it might not seem that serious of a threat today, but as the plan plays out over the next decade, we’ll wake up in 2020 and wonder ‘how this happened’.
that’s my big worry. this isn’t all going to come crashing down in a trade war – probably – but over time, which is the easiest way to doop america because we only think here and now. long term planning and thinking is just too big for us as a whole.
In the short term a weaker US dollar would GREATLY improve the US economy and lower unemployment and reduce the chances of a double dip. Full stop.
The argument is whether the best way to lower the US dollar is for China to sell all those US treasuries. I say yes!
My comments are not related to the automotive industry at all.
the pistol china holds might not be full of lead, but its full of a lot more than water.
this is a political issue and guys like krugman are very political. there is a lot of debate on this issue amongst economists. it’s funny how krugman can play it off so easily, yet the times was the first to publish the report on a rare earth embargo against Japan and made a breaking lead story. someone at the times, it seems, is a bit more alarmed than krugman.
the big thing, in my relatively uneducated economist opinion, is that the chinese government and country, etc. can withstand far greater hardship than can America. they are used to it. without question, china would hurt itself by acting too aggressively. but the US is sitting upon the precipice of a double dip. couple that with the crazy political scene in america these days, and it doesn’t seem it would be very hard for China to push some critically important US buttons, to divide us even further, making us more inept to adequately deal with the threat chinese automotive manufacturing poses.
and i think that’s the key. an all out trade war is a no win affair. it’s like nuclear detente. however, what might be critical, is that china now controls key resources. they also control a key market to GM’s future success. yet, in terms of the GM story, the rare earth story, the US doesn’t have much leverage to force China to change their ways.
that’s where krugman, again in my very humble opinion, is off base. this isn’t about a trade war, it’s about detente, which gives China a lot of power.
let us not forget, by 2020 warren buffett has predicted that BYD would be the biggest automaker in the world, and other chinese automakers probably won’t be very far behind. the competition the US has faced from Japan and Korea probably won’t come close to matching what could be coming from China, and if we’re not careful, we might get China to that level even faster.
by as early as next year there could be an electric car that uses a rare earth free motor. rare earths are important, but they will be replaced.
still, then their is lithium almost entirely found in countries not very liking of the US. plus, when it comes to lithium batteries, the majority of the profit potential is found in mining, refining and cell-manufacturing. for the most part, the us battery industry might only focus on assembly. consequently, it seems plug-in profits could be very hard to achieve via us manufacturing of plug-in vehicles.
thus, new engine technologies, start/stop, etc., etc. are extremely critical.
BTW, it is not just Krugman calling China’s threat an empty water gun.
The same article you link to quotes a British economist being even more direct.
“They are utterly wrong,” said Gabriel Stein from Lombard Street Research. “The lesson of the 1930s is that surplus countries with structurally weak domestic demand come off worst in a trade war.”
He described the implicit threat to sell Treasuries as “empty bluster” because Beijing’s purchase of these bonds is a side-effect of its yuan policy. “Bring it on: it will weaken the dollar, which is what the US wants. The interest rate effect can be countered by the Fed.”
“Some Chinese officials seem to believe that buying Treasuries underpins US public spending. In fact China’s mercantilist policy is forcing the US to run large deficits against its own interest. China should be terrified of a trade war.”
China is a rising threat, but they are not yet a global power. Mostly, they are not yet positioned with a lot of leverage against the US and the west. They need our markets more than we need theirs at this point.
I say the US gets to work, develops industry and manufacturing and supply chains, and gets ready to compete with a really powerful China in 10 years. Outsourcing to China was the easy way out for US companies. They could have invested in automation, and the US could have invested in new industries. We can still do those things and rebuild our economy.
Informative comments on China. The nuances about rare earth metals, magnets, timeline for replacement technologies make for fascinating reading.
I have one comment. I don’t buy the Chinese warnings about the US losing a trade war. They are bluffing.
Chinese labor is cheap, but also subsidized by the manipulated Yuan. The moment China sells off their US treasuries the US dollar goes down, the Yuan goes up, Chinese exports fall, and US exports rise. US interest rates will stay low due to the recession.
http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/
Unemployment in China would rise, and unemployment in the US would fall. Krugman estimates that China’s Yuan manipulations are costing about 1.4 million US jobs.
http://krugman.blogs.nytimes.com/2009/12/31/macroeconomic-effects-of-chinese-mercantilism/
In the words of Dean Baker, “China has an unloaded water pistol pointed to our heads.”
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=03&year=2010&base_name=nyt_spreads_nonsense_on_china
The rare earth metal issue is a different story. But Chine owning a Trillion dollars of US bonds, is their problem not ours!
Counting on a material that is not abundant in the US as a strategy for weaning us off another material that we also have to depend on other countries for (oil) was not a sustainable strategy anyhow.
If Ford can build cars that get 50+ mpg by using “hybrid-like” features that don’t require rare earth – then at the least – we buy ourself some more time to work on other alternatives.
No one ever claimed that the Chinese were economic geniuses any more or less than the oil cartels are.
It’s just common sense that if you own a valuable commodity that you want to get top dollar for it.
All countries do this including the US.
Check out this article on rare earths. http://marketplace.publicradio.org/display/web/2010/08/31/pm-rare-earth-minerals-from-china-are-rarer/
Sadly, we might not be able to compete. With the environmental standards, the costs of labor, etc., the costs of these rare earths will probably be too much according to top experts in the field.
It’s very interesting what is going on. First China begins a policy of significant reductions in rare earth exports. Then China warns the US that the US will lose a trade war with China. Then China tells the auto industry that participating in China means giving up your secrets and a good chunk of ownership. Then China warns Japan that they might be cut off from rare earth supplies.
The picture is becoming pretty clear. China is doing everything possible to create as much automotive production in China as possible, stealing all our knowledge and secrets along the way until, eventually, we’ll no longer be needed. China is moves ahead of us and we don’t even seem to realize what’s going on. Scary.
On the bright side, there is a good possibility that rare earths can be replaced. Continental is working on brushed synchronous motors that won’t use any rare earths. Of course, it might take a decade to make such technologies as cost-effective as just using rare earths and I think that’s why China is acting the way they are. If rare earths are quickly replaced with cheaper technologies, then they lose their competitive advantage.
we’ve apparently priced ourselves out of many job as others will do them for less.
We’re getting to the point on some things where our choice is to work at the world wage for something ….. or …not work.
Here is a good link to a company developing rare earth from the good old U.S.A. It is projected to be in production by 2012.
http://www.molycorp.com/globaloutlook.asp
If you read the whole article don’t miss the following fact. No one in the U.S. currently manufactures rare earth magnets that we need. So not only do we NOT have a supply of rare earth chemicals – we couldn’t get the magnets manufactured here if we wanted to. Will we ever learn that we can’t just buy our way to prosperity. Can’t we please start manufacturing some of this stuff! I need a job.
sadly, it seems that way, larry.
that doesn’t mean hybrid and EV technology doesn’t have a future, though. new magnets could both reduce the need for rare earths, or even lead to engineered replacements. the problem is the amount of time it takes to begin mining and developing refining capabilities in other areas, such as in the US – about a decade. now our weakness is exposed.
so, why not focus on natural gas for the next two decades – plenty of time to develop an adequate rare earth metal and lithium supply chain outside of China’s influence? besides, without serious US subsidies, the EV market isn’t going to develop that quickly.
well… some much for the “hostage to foreign oil” canard…..
we’re “hostage” to more than oil, eh?
Last night it was rumored that China stopped all exports of rare earths to Japan, although that report was denied this morning.
Still, interesting Washington Post article on the affair.
I guess it isn’t just the US, China can mess around with, but Japan as well.
Even more interesting it the new war that is being fought. Economics, not guns and missles, seem to be the growing weapon of choice in the new world run by technology.
they are becoming hostage. in recent years they’ve made major deals to secure energy supplies, such as oil.
we are hostage to foreign oil and our planned response to this – will make us hostage to other foreign-controlled materials?
you did finish up with one helluva question…on target….
China has a bigger middle class – than the entire population of the US and at some point, they’ll have as many cars as us.
My question is why is China not hostage to foreign oil like we are?