The trade war between America and China keeps heating up, and while at first vehicles were not included in the astronomical new import tariffs, this has all changed this week, when Donald Trump backlisted 134 Chinese companies that manufacture cars and car parts vital for electric vehicles around the world. This new block comes courtesy of Section 1260H and has collapsed the supply chain for many electric vehicle components, including the company Contemporary Amperex Technology Co. Limited (CATL), the largest electric vehicle battery manufacturer in the world.
This new economic trade action is being viewed by global analysts as a declaration of economic warfare and the consequences may be a lot worse for the American auto industry than the current Administration is prepared to deal with. Approximately half of all the lithium-ion batteries used come from China and manufacturer CATL in particular. The electric vehicle market is now unstable and America’s plans for 50% of new vehicles to be electric by 2030 may not see light of day.
Why restricting electric vehicle parts manufacturers like CATL is not a good step
CATL is as global leader in lithium-ion production and an integral part of the electric vehicle industry, as many manufacturers, including American owned companies, use CATL’s batteries in their models, and given the scale of production and the scarcity of accredited companies that can pass security tests and provide quality materials put them at the forefront of innovation and supply.
Having them off the board will lead to production being stalled and to increases in the price of electric vehicles of companies such as Tesla, Ford, and BMW, all of which are major players in the US automotive industry. Many experts have state that this is not about national security at all, but about forcing China to bend to Trump’s will after having to back down in previous weeks. After all, banning these 134 companies is a surefire way to tighten economic control by breaking ties with companies that have alleged links to China’s military, which would be a legitimate concern, without having to prove it.
The U.S. Department of Defense’s Section 1260H blacklist is one of the most important foreign policy tools that the country has, as it features the names of companies that allegedly have relations with the Chinese military and is updated every year to protect national security. Having your company be on this list is a surefire way to lose international business, but usually this is reserved for those that actually pose a threat to the country.
Other companies that have been targeted are Tencent, China’s tech titan, and CXMT, a major chipmaking company, both of them also essential in the production of electric vehicles. As with many companies listed on the new U.S. blacklist, the Defense Department has not provided any compelling evidence to show the relevance of CATL, Tencent or CXMT to any military activities, it is just a move to try to cripple China’s tech stronghold.
But the companies do not seem willing to take this lying down, especially considering the lucrative contracts that they have with American companies that would go up in smoke if this blacklist actually holds up. Both Tencent and CATL are looking at routes to take legal action via international forums and the Chinese government has labelled the U.S. blacklist as a politically motivated agenda that is based on the intention of causing economic destruction.
In retaliation, Chinese state-owned companies are laying down the foundation for the restriction of exports of raw materials that America needs, like rare earth elements, lithium, and cobalt, which will further cripple the electric vehicle industry and the tech industry at large.