[Inside Chodong] US-China Electric Vehicle Dispute Is Not Someone Else's Problem

U.S. Defends Against China's Offensive Backed by Supply Chain
Clouds Gather Over South Korea's Automobile Exports to the U.S.

The United States has settled on significantly raising tariffs on electric vehicles (EVs) made in China. China, which has emerged as the world's largest automobile exporter by leading with electric vehicles, has also threatened to respond firmly. Although the battle for market dominance is nothing new, the political situations in each country and the accelerated industrial transition have combined to create an unusual atmosphere.

The U.S. trade law Section 301, which the U.S. has invoked to pressure China, is also familiar to us. In the 1990s, as negotiations over opening South Korea's automobile market dragged on, the U.S. activated the Super 301 provision in October 1997. The Trade Act Section 301, enacted in the 1970s, has often been applied when the U.S. judged that unfair practices by a trading partner harmed or threatened to harm American companies. The Super 301, a strengthened version enacted in 1988, was first triggered by the U.S. in this case. Domestically, it was criticized across party lines, and a boycott of American products even erupted in the private sector.

This time, the target is Chinese-made electric vehicles. It is highly likely that the U.S. judged that if cheap EVs flooded its domestic market without any hurdles, the already lagging electrification transition would become even more difficult. China had early on established a supply chain for key EV components such as batteries and rapidly developed its domestic EV ecosystem by distributing massive government subsidies. The U.S. is also reported to include sectors with high growth potential, such as batteries and solar power facilities. These are fields expected to be directly linked to the community's well-being in the near future. The forthcoming measures imply an approach not merely to maintain trade superiority but from a security perspective.

Although the U.S. is wielding the same "weapon," the circumstances now are quite different from the past. While it took an aggressive stance when dealing with South Korea, this time it can only be on the defensive. The U.S. used the provision as leverage to open the South Korean automobile market, culminating in the Korea-U.S. auto negotiations in October 1998, one year after the activation. At that time, General Motors (GM) had held the position as the world's largest automaker for decades since the mid-20th century. The automobile industry was at its peak, with GM and Ford, symbols of America, ranking first and second in size among all U.S. companies.

In contrast, China now firmly controls the EV ecosystem, making it difficult for the U.S. to compete. In electric vehicles, competitiveness is judged less by accumulated engineering experience and more by how well the core supply chains, such as batteries, are established. China has also developed self-sufficiency through its large market and steady demand. Recently, monthly EV sales in China have reached 700,000 to 800,000 units. The world's number one EV and battery companies are also large Chinese firms (BYD, CATL) based on domestic demand. This is evidence that the global automotive industry paradigm, valid until the 20th century, has changed in less than a generation.

There are forecasts that if the U.S. rejects Chinese products, South Korea might gain indirect benefits, but the situation with EVs is not simple. South Korea exports various complete vehicle parts, including batteries, from China to the U.S. The market is discussing the possibility of renegotiating the Korea-U.S. Free Trade Agreement (FTA). In particular, there is speculation that the U.S. might pick on the relatively low origin rule (35%) compared to other countries. South Korea has repeatedly faced pressure to take sides in the U.S.-China conflict. Dark clouds have gathered over South Korea's record-high automobile exports to the U.S.