Tesla CEO Elon Musk Asks President Trump To Do Something About China’s Auto Industry Protectionism

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In a round of comments that are sure to cause cognitive dissonance in those of a highly partisan bent, Tesla CEO Elon Musk has requested that US President Donald Trump do something about the protectionism in China relating to the auto industry (via tweets of course).

As you are probably aware, auto manufacturers that want to sell their wares in China are currently either: subject to high import tariffs (25%), and/or required to form joint-ventures with local partners so as to manufacture locally and avoid these tariffs.

The creation of auto manufacturing plants that are completely foreign-owned is forbidden in China, in other words — as Tesla has come to understand over the last few years, while it has worked to establish production capacity there.

(All of this is a big reason why foreign automakers have a tiny percentage of the Chinese electric vehicle market — of that remaining percentage, it should be noted, Tesla has approximately 50% market share.)

Here are the 6 tweets from Elon, including one that references the Obama administration:

Do you think the US & China should have equal & fair rules for cars? Meaning, same import duties, ownership constraints & other factors.

— Elon Musk (@elonmusk) March 8, 2018

For example, an American car going to China pays 25% import duty, but a Chinese car coming to the US only pays 2.5%, a tenfold difference

— Elon Musk (@elonmusk) March 8, 2018

Also, no US auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV auto companies in the US

— Elon Musk (@elonmusk) March 8, 2018

I am against import duties in general, but the current rules make things very difficult. It’s like competing in an Olympic race wearing lead shoes.

— Elon Musk (@elonmusk) March 8, 2018

We raised this with the prior administration and nothing happened. Just want a fair outcome, ideally where tariffs/rules are equally moderate. Nothing more. Hope this does not seem unreasonable.

— Elon Musk (@elonmusk) March 8, 2018

To be clear, I think a fair outcome for all is quite likely. China has already shown a willingness to open their markets and I believe they will do the right thing.

— Elon Musk (@elonmusk) March 9, 2018

As it stands, the firm is facing an unbalanced situation, according to Musk — with the situation being that no “US auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV auto companies in the US.”

In his tweets, the Tesla CEO also noted that he was in general “against import duties” but that “the current rules make things very difficult. It’s like competing in an Olympic race wearing lead shoes.” That seems like a point people on either side of the aisle could agree on.

Interestingly, Musk noted that he apparently “raised this with the prior administration and nothing happened. Just want a fair outcome, ideally where tariffs/rules are equally moderate. Nothing more. Hope this does not seem unreasonable.” It should perhaps be added here that neither party has been particularly willing to put tariffs on imports in such a way (because of the potential for retaliation and “trade war,” amongst other things), but members of the Democratic Party have seemingly been more open to it in recent years. In fact, the person most widely discussed as the instigator and advisor behind the steel imports is Peter Navarro, a Democrat. In the West Wing battle, he won out over Trump’s just-resigned economic advisor, Gary Cohn, another Democrat, and just about every mainstream politician in either party.

Reuters provides more: “Tesla has sought to build a factory in China, and last November Musk said he hoped the plant would be operating within 3 years. However, Tesla and Chinese authorities have yet to announce an agreement. … The White House did not immediately respond to a request for comment.

“Trump told Reuters in an interview in January that ‘we have helped to build China because they have taken out so much money in terms of trade deficits with this country.’ He added that ‘when China or another country charges us 50% tariffs — more than that in some cases — and we charge them nothing, that’s not fair. That’s not fair.'”

While there’s clearly some truth to that statement, it’s also the case that “free trade” inevitably ends up benefiting the senior partner in an exchange* (i.e. the one with more clout). It’s a historical reality, for example, that one of the primary reasons that the USA was able to grow as fast as it did industrially in the 1800s was due to the presence of protectionist policies.

So one can’t exactly fault China’s leadership for attempting to look out for the best interests of the country’s citizens. Especially considering the recent history that the country has had with western powers (i.e. the “Opium Wars,” wars conducted expressly to stop China from banning the import and sale of opium to its citizens by foreign powers — western powers of the time made a vast amount of money selling the drug to China’s citizens, and thus weren’t willing to accept a ban.)

It is noteworthy here, though, that China’s government announced last year that it would begin slowly doing away with import tariffs on foreign cars over the coming years. Perhaps the government doesn’t feel that there’s any need for them anymore? Perhaps it feels that the country has nearly caught up with foreign manufacturers (with regard to auto production)?

What do those reading this think? Are China’s protectionist policies too much? Does the Tesla CEO have a point? Does the US President care one way or another? Is anything effective likely to occur?

I remain skeptical that China’s government is likely to be coerced in any real way on this matter myself, but it could be the case that my view on the situation isn’t completely accurate. I’d venture a guess, though, that most of what’s been going on with regard to potential trade wars has been “political theatre” — in the truest sense of the words.

I’ll end things here by noting that foreign auto imports in the US are only subject to a 2.5% tariff/duty. This figure is as low as it is, of course, mostly due to previous lobbying by auto manufacturers based in Germany and Japan. Though, it should be remembered that many “German” and “Japanese” cars sold in the USA are actually produced in the USA as well (so the import duty isn’t relevant in many cases anyways).

*Editor’s note: As with many things, Donald Trump has a very “transactional” approach to tariffs and trade. To put it another way, that’s the opposite of “three-dimensional chess.” Thus, when it comes to considering many ramifications of a decision and the other matters at play between the relationship and the broader networks they are a part of, such consideration doesn’t even get an opening to start. More or less, Trump looks at things in an “at the counter” way. Arguably, this could be why he has historically amassed so much debt, why it turns out he may not be so rich after all but actually in the red, and why his statements vary so widely — what works in a transactional relationship today may not work well for him tomorrow.