Big Picture
China’s electric vehicle (EV) manufacturing is performing exceptionally well. It surpasses the United States’ capability in production, export and cost metrics. Declining demand for EVs in the U.S. and cheaper Chinese prices have U.S. automobile manufacturers and the government struggling to respond. The former fears extinction, while the latter fears the loss of its competitive edge within the global manufacturing landscape. Both fear an economic disaster that comes from losing their domestic footing within the EV industry.
Losing market share is a realistic concern, as polling demonstrates an increase in consumers’ willingness to purchase Chinese cars. Chinese built cars balance reliability and modernity with their low price point. To combat the takeover of Chinese imports, the White House has increased tariffs on EVs from 25% to 100%.
However, given the tension between the U.S. and China, this is a short-term solution for a larger issue that could deteriorate diplomatic and trade relations with China. Instead, the U.S. should utilize its proximity and trade relations with Mexico to strategically invest in near-shoring the semiconductor supply chain to compete against China’s E.V. industry successfully.
Operative Definitions
- USMCA: The United States-Mexico-Canada Agreement (USMCA) is the replacement for the North American Free Trade Agreement (NAFTA). It formalizes reciprocal trade practices between the three countries.
- ITSI Fund: The International and Security and Innovation Fund (ITSI) distributes $500 million over a five year period to develop secure telecommunications networks and diversify semiconductor supply chains.
- Nearshoring: The establishment of supply chain sourcing in a nearby country that has the necessary resources.
- Tariffs: Tax barriers on goods and services imported from one country to another.
- Semiconductors: Advanced computer chips used in both common household items as well as advanced military technologies.
Important Facts and Statistics
- China has the capacity to make half of the world’s cars.
- Chinese cars could be sold for as little as $11,500 in the U.S..
- The U.S. is experiencing weakening EV demands, partially due to high prices.
- China’s government spent $231 billion in investments and incentives for Chinese manufacturing from 2009-2023.
- The White House has increased China’s E.V. tariffs from 25% to 100%.
- In the U.S., 76% consumers under 40 are increasingly willing to buy Chinese EVs.
- Mexico has a history of being a reliable and essential trade partner with the U.S.
4-Point Plan
- Decrease Chinese Tariffs to 50%.
The tariffs are America’s stalling strategy. It hopes to avoid Chinese competition for a few years so American car manufacturers catch up with Chinese capabilities. But, shutting China out is not the answer. High tariffs could increase tensions, and possibly cause China to retaliate. China creates and provides the technology for many electronics, such as batteries, metals and semiconductors that are necessary for EVs. Until the U.S. can domestically produce these materials it should continue to try and maintain good relations.
- Invest in Mexico’s Manufacturing Infrastructure
Offer federal assistance for the development of Mexican infrastructure that targets supply chain needs. Initiatives that create advanced manufacturing plants, expand EV charging infrastructure or further develop Mexico’s support role in the local semiconductor supply chain.
- Leverage Existing Networks in the US to Expand Education Opportunities
One obstacle that Mexico and the United States must overcome is the lack of a workforce trained in semiconductor technology. The need for skilled workers will continue to grow as more jobs become available. The solution is to leverage existing education structures and partnerships to accelerate training and ensure all funding is distributed to operational programs. Established projects, such as The U.S. National Science Foundation Advanced Technological Education (ATE) program, focus on expanding access to semiconductor education at primary, secondary and trade schools as well as in colleges. Distributing grant funding for semiconductor education to these agencies would put to use an existing network and strengthen each recipient within it.
- Utilize Existing Networks in Mexico to Expand Education Opportunities
To fund Mexico’s education workforce the U.S. needs to utilize its existing capabilities. Arizona State University (ASU) has already begun to partner with the Ibero-American Technology Foundation in Mexico to research semiconductor manufacturing and expand education in the field. Providing grant opportunities will take the educational programs to the next level.
Why This Initiative is Important
Competing with China’s EV industry requires a long-term approach. The 100% tariffs risks exacerbating already precarious relations with China. To be successful, the U.S. must focus on near-shoring semiconductor production to Mexico and investing in building manufacturing infrastructure. Additionally, further investment in further developing established educational networks will be critical because it will provide both countries with the skilled workforce necessary to compete against China. In partnering with Mexico, the U.S. can establish a secure supply chain and have a chance to compete.
