March 4, 2024 - 7:00am

Over the weekend Mathias Miedreich, chief executive of the battery-maker Umicore, told the Financial Times that Chinese electric vehicles (EVs) are beating out their American counterparts in the market. “They are just good cars and people buy them,” he told the paper. “American producers seem to struggle to bring good electric vehicles to the market.”

The statistics show that Miedreich is not exaggerating. EV sales in China rose 36% to 7.7 million in 2023, up from 5.7 million in 2022, according to data from the China Passenger Car Association in the FT. Chinese-made cars make up a full third of the total passenger vehicles sold in China. The American market is nowhere near as large, clocking in at only 1.5 million in 2023. The relative size of the markets provides some explanation as to why the Chinese models are now in higher demand.

Last week, Joe Biden stated that Chinese smart cars are a threat to national security. The American President stated that the cars are connected to the internet “like smartphones on wheels”, and that they could be used to collect sensitive information on American citizens. But China already has a large presence in the American smartphone market, and the Chinese dominate the market for laptops, with over 80% of laptops bought in the United States being Chinese-made. So why would the country not just spy on people through their laptops and smartphones instead?

This speaks more generally to the American-led strategy of so-called “derisking”. The US government is telling both its citizens and its allies that it needs to wean itself off Chinese products that are a threat to national security. But as the EV example shows, the case can be made that basically any product that can be connected to the internet is a potential threat. It is very hard not to think that the United States is simply falling behind in its capacity to lead the world in new technology and is using national security as a pretence to convince American citizens and other countries to buy their inferior products.

Biden’s own statements suggest as much. “China is determined to dominate the future of the auto market, including by using unfair practices,” the President said last Thursday. “China’s policies could flood our market with its vehicles, posing risks to our national security. I’m not going to let that happen on my watch.” In reality, Biden is simply describing global market competition. Phrases such as “dominate” and “flood” merely reflect the fact that China is producing better, cheaper products than its rivals. 

It seems highly likely that the United States, and probably Europe too, will pull up the drawbridges on global trade to support their inferior car industries. Perhaps this is necessary to maintain jobs — especially with high energy prices in Europe. But it also means Western economies will fall behind China as their industries are insulated from the competitive pressures that spur innovation. 

This may not seem like a problem to some. Even if the Chinese power ahead and produce world-leading technology, we can just make and buy our own inferior technology. This is no doubt true, but the rest of the world will not follow suit. There is every chance that if these policies are pursued, in ten years’ time a Western visitor to Moscow or New Delhi will see more modern vehicles in those cities than in London or New York. And our power and influence will wane accordingly.

Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics