The go-slow gambit on Biden’s car subsidies

Welcome to Trade Secrets. As far as I can tell, the big Macron-Biden love-in last week boiled down to Biden saying “Congress had no idea what they were doing with those electric vehicle subsidies, sorry about that, we’ll punch some holes in the law” and Macron saying “Très gentil, but we’d better start splurging on our own green handouts just in case”. Then a lot of smiles, something about baguettes, and the EV subsidies race is off, if the Europeans can afford it. It’s set to be Airbus-Boeing, but without the litigation. They could do worse, to be fair, but they could also do a lot better.

Meanwhile, the transatlantic Trade and Technology Council meets in Washington today, but it isn’t the main forum to address the EV issue, confirming the TTC’s emerging reputation as a place for talking about the non-contentious stuff. EU internal markets commissioner Thierry Breton, who was seriously put out at not joining the first TTC in Pittsburgh in September 2021, isn’t bothering to attend this one.

Today we look at two other aspects of EV subsidies: the roles of the other big aggrieved countries, Japan and Korea, and the inconvenient facts about who actually makes the vehicles. (China.) Charted waters looks at the factors affecting food inflation.

Tokyo and Seoul try putting on the brakes

People (including me, apologies) often give the impression that the only antagonist in the US car subsidies row is the EU. But what of the other two main complainants, Japan and Korea? Neither country is happy, but they seem to be following somewhat contrasting tactics.

Japan’s signalled its concern but is taking things slowly and isn’t going to rush into World Trade Organization litigation — a caution generally shared by the EU despite the occasional burst of feisty rhetoric from Brussels. A Japanese official says: “At this point in time we need to express our views and hopefully engage in bilateral dialogue.” Like Brussels, Tokyo is concentrating on influencing the implementation of the Inflation Reduction Act. In particular, it would like more time for US-based Japanese factories (Toyota has a plant in West Virginia, Senator Joe Manchin’s state, and a battery factory in North Carolina) to expand and amend their supply chains enough to be able to benefit from the tax credit.

Korea has been making much more confrontational noises, explicitly mentioning a WTO case, most likely because its more febrile domestic political situation demands an aggressive response. It’s got the same timing issue as Japan: the Korean carmaker Hyundai’s investments in the US are some way off starting to churn out EVs, making it unlikely that they will adapt by the time the IRA tax credit is implemented. Raphael Warnock, the Georgia senator whose state houses Hyundai, has introduced a bill to delay the credit until foreign carmakers have had time to adjust. Without something like that, we might well see a litigation element being thrown into the IRA affray from Seoul. Won’t that be fun?

Don’t forget who actually makes EVs

It’s actually slightly surreal that we’re all focusing on the Europe-US argy-bargy over EVs, last year’s enjoyably bonkers Norway-phobic Will Ferrell Super Bowl advertisement for GM’s EVs being the definitive example of the genre.

The real force in electric vehicle manufacture is China, which aggressively built up its domestic market and production capacity early on. Never mind a few local-content sweeties thrown into the IRA that might make not much difference anyway, Beijing has used seriously aggressive investment and trade incentives to get foreign companies to set up there, including technology transfer. Foreign companies seem to have made the calculation that they’re going to have their technology copied or stolen anyway, so best trade it for some Chinese market share.

As these striking charts from the think-tank Merics show, traditional European internal combustion (IC) car exports to China, one of the reasons the German corporate establishment clung to the Wandel durch Handel illusion for so long, are giving way to EV imports coming the other way. Half the Chinese exports to the EU are Tesla and the rest also overwhelmingly non-Chinese brands, including BMW and Renault.

Should European governments have used more Chinese-type intervention tactics? Perhaps, but better to do it by increasing consumption incentives early on to expand the domestic market than fiddling around with trade restrictions. It’s another big failure of the German political-industrial complex that they clung to IC engines in the European market rather than seeing the technological transformation shifting under their feet.

As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.

Charted waters

Here is some good news: wholesale food prices have stabilised over recent months. So does this mean some relief for households from high inflation in basics ingredients such as rice, milk and bread? Sadly not, as the chart below shows.

The problem, according to this very good analysis by Financial Times colleagues, had been two of the four horsemen of the apocalypse: war (in Ukraine) and famine (from poor harvests blamed on climate change).

We are now in the third year of the La Niña weather phenomenon — the cause of severe droughts in the US, Argentina and Europe — have hit farmers, curbing their ability to increase output. Add to this the Ukraine conflict, which has raised the cost of energy for food production, and price rises are not expected to wane for a while yet. (Jonathan Moules)

Trade links

Chinese trade data released this Wednesday will give us some clues about the state of the world economy.

People casting around for actual uses for blockchain technology have often alighted on digitising trade paperwork, and particularly a platform developed jointly by IBM and the shipping giant Maersk. Sadly it didn’t get the customers it needed and has been canned.

The German Bundestag last week formally ratified the EU-Canada trade deal, Ceta, which seemed all very contentious and important when it was signed and provisionally went into force six years ago. Now it appears a rather quaint discussion from a bygone age.

A long-running US investigation found China was circumventing tariffs on solar panels by routing them via countries in south-east Asia, a finding that came as a surprise to literally no one.

Trade Secrets is edited by Jonathan Moules