China’s Tariff Wars: The EU Opens a New Front

*This video was recorded in June of 2024.

We’re talking about a different kind of war today – Trade Wars. Specifically, we’ll be looking at attempts by the US and EU to limit Chinese involvement in their electric vehicle markets.

With 100% tariffs from the US and around 50% from the EU, the Chinese EV industry is being backed into a corner…and its only going to get worse. China’s retaliatory measures are limited by their dependence upon foreign imports and attempts to restrict exports of other materials like gallium have backfired. Heck, the Chinese even tried to slap some tariffs on bacon.

China’s myriad of other issues (demographics, post-COVID decline, low value add, etc.) have only exacerbated the problems brought about by these tariffs. The semiconductor industry is a good example of the inefficiencies in the Chinese system and how reliant on foreign expertise it is.

Don’t get me wrong, China is the world’s manufacturer and that’s no small thing, but its dominance will be challenged by these ever-growing wars on trade.

Prefer to read the transcript? Click here

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First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from the top of Frazier Peak in New Mexico. Back behind me, you can see Mount Walter and just a little bit of Wheeler.

Today, we’re going to talk about trade wars shaping up with the Chinese and why the Chinese don’t have too much leverage. The issue is that the United States and the European Union have both put heavy tariffs on Chinese electric vehicles—100% in the United States, about 50% in the case of Europe.

This is just the first round. Expect these tariffs to at least double over the next couple of years. The goal is to keep everything that involves any part of a Chinese EV out of the system, starting with the finished vehicles. This will extend to parts and especially batteries in the near future.

This is the beginning of the process, not the end. Regardless of what you think about electric vehicles, there’s a belief in the governing systems of both the U.S. and the EU that this is the future, and they don’t want another country or economic bloc to dominate it. Obviously, there’s a lot of subtext there, but that’s the core of the issue.

The Chinese are looking for things to retaliate against. The problem is, when you’re a major manufacturing country that imports all of your raw materials and relies upon foreign markets for all of your sales, there’s not a lot you can do. If you impede trade, you’re destroying the trade system you rely on for your economic model.

The demographic situation in China has gone from bad to horrific. Since the beginning of Covid, we’ve discovered that not only did they overcount their population by well over 100 million people, but people have aged out of the block that does most of the consumption.

We only got our first decent look at Chinese demographics a little under a year ago. The Chinese are now starting to understand why retail sales have not rebounded post-Covid—they’re not going to rebound because they no longer have enough people to generate a rebound. So, foreign sales are all they have. China is also not the technological leader, which means it can’t withhold technology from its trading partners to get market access.

So, the question is, what can they reach for? In the United States’ case, if you retaliate with tariffs on anything, it immediately triggers a second round of tariffs on you, which hurts you more. Even with things where the Chinese might seem to have an advantage, like gallium and germanium (two rare metals they dominate in production), they restricted access to Japan and the U.S. after previous sanctions rounds. The problem is, these metals are just byproducts of aluminum manufacturing. The U.S. is getting back into aluminum smelting, solving that problem, and leaving China without leverage.

In Europe, this is the first significant trade dispute between the EU and China, and it’s not likely to be the last. Europe is known as Fortress Europe for a reason, and China is ripe to be cut out of the European market. Right now, however, the Chinese don’t feel the same danger in doing retaliatory tariffs against Europe as they do with the U.S. The problem again is finding leverage, and they’ve gone after pork.

Back before Covid, China was hit by a massive outbreak of African swine fever, decimating their herds. America and other swine exporters stepped in to fill the gap. Then, the Trump administration cheesed off the Chinese government, leading China to decide to never buy American foodstuffs again unless there was no other option. They switched to European supplies for pork, mainly from Denmark, Spain, and to a lesser extent, Italy.

Fast forward a few years, and China’s swineherd has recovered, creating overproduction. Now, they’re sticking it to the Europeans on pork. It’s not nearly as impactful as targeting semiconductors, but the Chinese don’t have much leverage there either.

No one makes high-end semiconductors by themselves. Making chips better than 28 nanometers involves over 9,000 firms globally. China can make chips of about 90 nanometers, suitable for smart light bulbs, but anything more sophisticated requires significant outside help. The idea that having a fab plant means you can run with it is false. It takes a village for specialty chemicals, design work, and lithography.

If the Chinese ever find something to retaliate with, the EU and U.S. can hit back in ways that impact core Chinese interests very quickly. This leaves the Chinese with limited options, like going after pork. Unless you’re raising pigs in Spain, this isn’t a big deal yet. Sooner or later, Chinese demographics will cause their system to collapse, revealing how much of the lower-end manufacturing the rest of the world can do without. China is the workshop of the world for mid to low-quality products and the king of assembly, but that’s not the tool you use to fight a trade war.

Why EVs Aren’t The GreenTech Panacea

When the major auto manufacturers start changing their EV plans, it’s probably a sign something’s not quite right. For all those who think they’re better than everyone else because they drive a Tesla, this video is for you…

Most people see electric vehicles and think it’s good, but remember to read that fine print. Given an increased reliance on Chinese manufacturing and issues with the energy mix and materials, those “planet-haters” driving internal combustion vehicles likely have a smaller carbon footprint than EV drivers.

Transitioning the world’s fleet of cars to EVs is just plain impractical unless we uncover a bottomless supply of materials and invent a new battery chemistry. Until that happens, we’ll continue to see EV sales fall and auto manufacturers lean away from EV plans.

In an ideal world, we would prioritize more practical green technologies instead of pissing away capital and resources on Elon’s new Model XYZ123.

Prefer to read the transcript? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Support medshare's ukraine fund
Support medshare's global efforts

Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado, where we’ve just had our first big winter storm and probably get a little bit more on top of the nine inches we got last night. Anyhow, the news of the moment is that a lot of major auto manufacturers are scaling down their plans to make the electric vehicles. Ford and GM have both suspended or canceled plans to build a couple of new facilities for Battery TV assembly.

No changes to their internal combustion engine vehicle plans. Tesla has indicated a significant drawdown in their global production capacity. And in fact, they’re saying they’re going to suspend and maybe even cancel the plans for the Gigafactory that they were going to be building in Mexico, although that’s very TBD. There are a lot of issues in play here. But let’s start with told yourselves, this is something that was never going to work.

From an environmental point of view, most EVs are best questionable. The data that says they’re slam dunk successes assumes that you’re building the EVs with a relatively clean energy mix and the recharging it with 100% green energy. And that happens exactly nowhere in the United States. The cleanest state is California. They are still 50% fossil fuel energy. And they lie about their statistics because they say they don’t know what the mix is for the power that they’re importing from the rest of the country, which is something like a third of their total demand.

And the stuff that comes from the Phenix area in Arizona to the L.A. Basin, which is something like ten gigawatts a day, which is more than most small countries, is 100% fossil fuel. But California claims to not know. More importantly, on the fabrication side, because there are so many more exotic materials and because energy process to make those materials is so much more energy intensive, all of this work is done in China and in most places it’s done with either soft coal or lignite.

So you’re talking about an order of magnitude more carbon generated just to make these things in the first place compared to an ice sheet. And that means that these things don’t break even on the carbon scale within a year. For most, you’re talking about approaching ten years or more. And that assumes you buy the Chinese data, which is right.

Okay. So that’s kind of number one. Number two is materials. These vehicles require an order of magnitude more stuff, more copper, more molybdenum, more more lithium. Obviously, graphite and the energy content required to put those in a process is where most of the energy cost comes from. But the more important thing is, is if we’re going to convert the world’s vehicle fleets to these things, there’s just not enough of the stuff on the planet.

I’m not saying that we can’t build a time, but that time is measured. In decades, humanity has never doubled the production of any industrial material at any time in history. Within a ten year period, if it was something we were using before and supposedly we need, you know, ten times as much nickel and all the rest, so the stuff just isn’t there.

So even if this was an environmental panacea, which it’s not, we would never be able to do it in a very short timeframe. You’re talking the century plus most likely third cost your typical even if you want to compare it to something that’s an internal combustion, it really depends upon the model. The cheapest ones are going to still cost about 10,000 more than their equivalent.

The more expensive ones can be upwards of 70,000. And so this is not a vehicle whose for most people and that’s before you consider little things like range anxiety and I’ve rented I think if it’s real is that there just aren’t enough charging stations. So in order to build out the electrical system that we need, in order to have a nationwide EV program, we need to basically increase low end the amount of electricity generation and throughput of our system by about half.

Now, there’s only been one year since the 1960s where the United States is ever increased the amount of electricity generated by more than 3%. And that was the year we came back from COVID. And so we didn’t have to install any new infrastructure for that. We would have to generate the sort of build up that we did back in the fifties when the country was electrifying for the first time.

And that’s going to require an order of magnitude more, almost two orders of make well, let’s call it 20 times more equipment when it comes to things like transformers and cables than we have done in 75 years. And if we started building out the facilities necessary to build those things today, they will not be ready at scale within four years.

And then you can begin the build out in four years and it’ll still take another decade. So no, no, no. But finally, I mean, the EV manufacturers really don’t pay any attention to any of this. The real issue is that sales are down for these reasons and more people just aren’t interested in EVs at the current time. They’re not as reliable.

They don’t have the range. People are a little nervous about the technology in general, and perhaps most importantly, if you’ve got a new style of EV that comes out, these are new technologies. Not a lot of people want to play today’s prices for yesterday’s EV. And so what we’re seeing is cars building up on the lots, not internal combustion cars.

Those lots are empty but EVs are building up on the lots and people just aren’t buying them without absolutely massive discounts. And the discounts are now to the point that the whole industry is no longer profitable, even with the subsidies that came in from the Inflation Reduction Act. Ultimately, if people don’t want them, these are not going to be sold.

And so we have now converted 1% of the American vehicle fleet to EVs, and it looks like we may be very close to the peak, but for me, a green who can do math, this couldn’t come soon enough. We have limited capital, we have limited resources, we have limited material inputs and we have limited labor. And we really need to focus on the technologies of the green transition that work.

And this isn’t one of them.

EV’s Not-so-little Dirty Secret(s)

Ok ok ok fine I’ll do it. For the past few months I’ve been putting out videos on a host of topics, and in pieces on automotive or trade or greentech or whatnot I’ve mentioned as an aside that electric vehicles are on average a bad idea that will not be with us all that much longer, but I’ve failed to make good on the promise of “a topic for another video”.

Well, here it is. It doesn’t really matter your angle of attack on this topic. EVs in their current form are a disaster strategically, economically and environmentally, and that’s before you consider the withering of Tesla.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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