An influx of Chinese cars is terrifying the West

Weekly Business Insights from Top Ten Business Magazines | Week 331

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 331 | January 12-18, 2024

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An influx of Chinese cars is terrifying the West

The Economist | January 14, 2024

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Is china about to unleash another wave of deindustrialisation on the rich world? About 1m American manufacturing workers lost their jobs to Chinese competition in 1997-2011, as the country integrated into the global trading system and began shipping cheap goods overseas. This “China shock” has since been blamed for everything from rising deaths among working-class Americans to the election of Donald Trump. The rejection of liberal attitudes to trade also explains why politicians embrace industrial policy today. Now China’s carmakers are enjoying an astonishing rise. That stokes fears of another ruinous shock. In fact, the successes of Chinese cars should be celebrated, not feared.

Just five years ago China shipped only a quarter as many cars as Japan, then the world’s biggest exporter. This week the Chinese industry claimed to have exported over 5m cars in 2023, exceeding the Japanese total. By 2030 China could double its share of the global market, to a third, ending the dominance of the West’s national champions, especially in Europe.

The temptation will therefore be for rich-world policymakers to shield their carmakers from the onslaught of state-backed competition. The potential gains to the West from a ready supply of cheap, green vehicles are simply enormous—and dwarf the cost of disruption and the dangers it brings.

One reason is that the market for cars is going to be upended, regardless of trade with China.  Much as the first China shock was responsible for less than a fifth of total manufacturing job losses occurring at the time—many of which were attributable to welcome technological advances—so too there is a danger of confusing disruption caused by the shift to evs with that caused by Chinese production of them.  Next consider the gains from letting trade flow. Vehicles are among people’s biggest purchases, accounting for about 7% of American consumption. Cheaper cars mean more money to spend on other things, at a time when real wages have been squeezed by inflation. And Chinese cars are not only cheap; they are better-quality, particularly with respect to the smart features in evs that are made possible by internet connectivity. Nor does the existence of a carmaking industry determine a country’s economic growth.  Last, consider the benefits to the environment. 

What about the risks? The threat to industry from cheap imports is usually overblown.  Another worry is national security. Depending entirely on China for batteries, whose importance to electrified economies will go far beyond cars, would be risky.

2 key takeaways from the article

1. Just five years ago China shipped only a quarter as many cars as Japan, then the world’s biggest exporter. This week the Chinese industry claimed to have exported over 5m cars in 2023, exceeding the Japanese total.  By 2030 China could double its share of the global market, to a third, ending the dominance of the West’s national champions, especially in Europe.
2. Is china about to unleash another wave of deindustrialisation on the rich world?  In fact, the successes of Chinese cars should be celebrated, not feared.  One reason is that the market for cars is going to be upended, regardless of trade with China. Next consider the gains from letting trade flow.  Last, consider the benefits to the environment. What about the risks? The threat to industry from cheap imports is usually overblown.  Another worry is national security. Depending entirely on China for batteries, whose importance to electrified economies will go far beyond cars, would be risky.

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Topics:  Auto Industry, China, Electrice Vehicels