One of my trusted news sources is News Items from John Ellis. Today’s email contained an item—revolution in global manufacturing—that grabbed my immediate attention.

This regards China’s long term investment in electric vehicles that is now paying off. I remain convinced that one of the many reasons Elon Musk decided to throw whole-hearted support to Donald Trump was Trump’s belief in using tariffs to protect American industry. A significant one could be Tesla—the EV company under threat from China’s BYD.

Beyond Tesla lie many other American car companies that have been the foundation of our manufacturing health for a century. The other American car companies, bowing to short-term financial pressure, are scaling back on EV manufacturing just at the time China is poised to dominate the market.

Ellis quotes (requires subscription):

As (a) New York Times story makes clear, China now has an incredible—and I would argue unprecedented—capacity to supply over half the global market for cars, which is typically around 90 million cars a year.

China’s internal market is around 25 million cars, and not really growing—so rising domestic EV sales progressively frees up internal combustion engine capacity for export. Domestic demand for traditional cars is likely to be well under 10 million cars next year given the enormous shift toward EVs now underway inside China.

Put differently, China currently has the capacity to produce over two times its own domestic demand and is adding to that capacity quickly thanks to the rapid expansion of its electric vehicle sector. It thus has almost unlimited potential capacity to export.*

That sets the scale for a potential revolution in global manufacturing.

The story is partially derived from an article in The New York Times:

China is a leader in the transition to electric vehicles and it exports more of them than any other country. Chinese brands like BYD are becoming known worldwide for offering advanced electric cars at the most competitive prices. And as Chinese drivers have shifted rapidly to electric vehicles, demand for gasoline-powered cars in China has plunged and many are being exported instead.

Interesting that while waiting for the critical mass for the EV market, China is using its manufacturing capacity for internal combustion cars to export these.

But China’s trading partners say that China’s exports of both electric and gasoline-powered cars imperil millions of jobs and threaten major companies. Earlier this year, the United States and the European Union put significant new tariffs on electric cars from China. Governments are concerned because the auto industry plays a big role in national security, producing tanks, armored personnel carriers, freight trucks and other vehicles.

Two years of my undergraduate work was dominated by the study of international politics—how nations relate and interact with each other. I’m consistently amazed by the lack of understanding by US politicians elected to high office who do not seem to grasp the basics. For example, Trump seemed to think that the US could employ tariffs to bend other countries to our will. But other countries can employ the same tools back to us.

What’s more, China has used steep tariffs and other taxes as a barrier to car imports, so that practically all of the cars sold in China are made in China.

Relationships are complicated—both country-to-country as well as person-to-person.