The Problem With Electric Vehicles

For the last quarter century, those of us hoping we could slow global warming were anxious to see a quick conversion to electric vehicles (EVs). If we could get most people using electric vehicles, and have the energy coming from clean sources, we could radically reduce greenhouse gas emissions.

The problem was that EVs were considerably more expensive than their conventional counterparts. There were savings in operation due to lower maintenance, and the electricity generally costing less than gas, but that usually was not enough to offset the higher purchase price.

This was the motivation for the tax credit that the Biden administration included in the 2022 Inflation Reduction Act. The idea was to bring the price of EVs closer to the price of conventional cars.

After worrying for decades that the price of EVs was too high, we now have a different problem, the price is too low. China is now producing over ten million electric cars a year, some carrying price tags of under $10k. This has prompted terror here, with politicians tripping over themselves to find ways to keep people from buying them.

The concern is that it will wipe out the domestic U.S. auto industry. After telling us for decades that Americans don’t want to buy electric cars, people like Donald Trump are yelling about how we have to take strong measures, like 100 percent tariffs, to prevent them from buying electric cars.

This would be great comedy, except that it is a huge issue, and no one apparently cares that politicians are inconsistent. But those of us who are not running for office have the ability to talk about the issue seriously.

First, if China wants to export cheap EVs to the world, we should see that as a good thing, not an act of war. The flat-earth society may not believe in global warming, but the rest of us don’t have that luxury. Tens of millions of low-cost EVs being sold around the world in the next few years would hugely help advance the effort to slow emissions. If China wants to subsidize this process, we should be thanking them.

At the same time, it does make sense for us to protect our domestic industry. We do have a genuine national security interest in not being dependent on China for our cars.

We can do this by stealing a page from Ronald Reagan. In the 1980s the U.S. auto industry’s survival was seriously threatened by a flood of imports from Japan. Reagan responded by getting Japan to agree to voluntarily export restraints on the number of cars they sold in the United States.

Under this system, the major Japanese manufacturers were each allowed to export a certain number of cars each year to the United States. These restrictions gave the U.S. industry breathing space to adjust to changing conditions in the auto market and adopt more efficient manufacturing techniques. It also encouraged Japanese manufacturers to establish operations in the United States, where they now directly and indirectly support hundreds of thousands of jobs.

We could adopt a similar approach with China. Obviously, there would be serious haggling over how many EVs the Chinese manufacturers could sell here, but at the end of the day we should be able to agree on a number.

Since China will have capacity to export more EVs than the United States and other wealthy countries are willing to import, we can work together with China to promote their export to developing countries that currently lack a domestic car industry.

In many poorer countries the EVs would be replacing older cars that spew large amounts of emissions. This would be great from the standpoint of slowing global warming, and also from the standpoint of improving the health of people in developing countries.

This would be a great way to work with China to further our common goal of slowing global warming. Politicians like to compete about who is tougher on China. That might be fun theater, but the entertainment is not worth our time.

We should instead want our politicians to compete over who can be smarter with China. Cooperating with China to rapidly replace conventional cars with EVs is smart. We should want our politicians to compete over that.

This first appeared on Dean Baker’s Beat the Press blog.

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