Key Takeaways

• US restrictions on Chinese exports and domestic subsidies like the CHIPS Act must be viewed in the context of playing catch up with Beijing’s head start in the electric vehicle sector.
• Such national security considerations are creating a drag on the global competitiveness of the US electric vehicle sector, at least in the short-term.
• Supply chain security remains a key imperative going forward as the United States looks to rebuild its industrial base.

Beijing recently demanded that the United States end the “unreasonable suppression” of its companies, particularly in the electric vehicle (EV) sector. The statement comes in response to increasing US restrictions on foreign, particularly Chinese, technology, often on the basis of national security concerns. China dominates the global supply chain for critical EV components, including minerals like lithium and cobalt, and EV batteries. Moreover, Washington accuses China of unfair trade practices, including government subsidies, and is anxious over its growing reliance on Chinese technology, which generates vulnerabilities in cybersecurity, trade, and national defense. Finally, the prevalence of Chinese tech in the supply chain raises concerns about espionage, data theft, and cyber-attacks through embedded software or hardware.

Reducing Vulnerabilities and Securing the Supply Chain

Efforts to reduce China’s role in US supply chains began under the Trump administration and have intensified more recently. The Biden administration has enacted policies such as the CHIPS Act (2022), which focuses on boosting domestic semiconductor production, a critical component for EVs. The Inflation Reduction Act (2022) also facilitates EV production via tax credits, but only for vehicles made with materials sourced from the U.S. or free-trade partner countries, excluding China. Furthermore, the Defense Production Act, invoked in 2022, encourages domestic production of minerals vital for EV batteries to reduce dependency on foreign sources, particularly China. Such efforts are also increasingly evident in US foreign policy and infrastructure investments; for example, the Lobito Corridor that seeks to establish an Atlantic export route for critical minerals in Zambia and the DRC.