What will the rise of Chinese automakers mean for Michigan’s auto industry?

Khodrocar - In the mid-1970s, Japanese automakers began flooding the United States with small, low-priced, well-built, fuel-efficient cars that American buyers were demanding, but Detroit automakers mostly didn’t offer. Autoworkers feared for their futures.

A 1981 Associated Press photo showing frustrated Ford hourly workers smashing a Toyota with sledgehammers ran in newspapers around the world. And in an ugly incident, two autoworkers in 1982 murdered Vincent Chin, a Chinese-American man who they mistook for being Japanese.

That was the same year Honda became the first Japanese automaker to build a U.S. assembly plant, located in Marysville, Ohio. Japanese companies today employ more than 100,000 American workers and produce a third of all cars and trucks made in the U.S.

Now Detroit automakers are facing an existential threat from China, which could be sending hundreds of thousands of low-priced, technology-laden cars across the Mexican-U.S. border to American showrooms in the not-so-distant future.

Many of those vehicles would be electric as Ford, General Motors and Stellantis struggle to convert their truck-heavy lineups from gas to battery power.

"These are dangerous days in Detroit,” automotive consultant Michael Dunne wrote in an essay about Chinese automakers for Automotive News. "Leaders in Detroit must find ways to compete or they risk vanishing like Kodak or Blockbuster.”

Chinese-made cars won’t likely be shipped directly from the Middle Kingdom to the U.S. anytime soon because of heated relations between the two superpowers. 

In 2018, the Trump administration slapped a 27.5% tariff on billions of dollars’ worth of Chinese goods, including vehicles, over what U.S. officials claimed were unfair trade practices and intellectual property thefts by China. The Biden administration has maintained those tariffs and is considering boosting them on Chinese-made electric vehicles.

Those tariffs have kept Chinese-made vehicles out of the U.S. market, except for several models from Detroit automakers’ China factories and electric vehicle maker Polestar.

But there are growing fears in Washington that Chinese automakers will use Mexico as a "back door” to access the U.S. market. 

Chinese automakers, including BYD, a Warren Buffett-backed company that surpassed Tesla as the world’s largest producer of electric vehicles for the second straight year, are eyeing Mexico for new battery and vehicle assembly plants.

That would likely allow them to sell electric vehicles in the U.S. tariff-free under the United States Mexico Canada Agreement (USMCA), a free-trade pact negotiated by the Trump administration. 

The USMCA, an update of 1994 North American Free Trade Agreement, requires that 75% of a vehicle’s content must be manufactured in the region to avoid tariffs. And up to 45% of that content must be produced by workers earning at least $16 an hour.

That’s less than half of what most UAW workers at the Detroit Three are earning under historic new labor contracts.

The Chinese auto industry has major implications in the upcoming presidential election in November. Both likely candidates — Trump and President Joe Biden — are using the issue to win the critical battleground state of Michigan.

Trump claims the Biden administration’s new vehicle emission standards will force automakers to exclusively build electric vehicles that buyers don’t want. He has said the entire U.S. auto industry could be lost to China, which is, by far, the world’s largest producer of electric cars.

UAW leadership believes Biden, who met with UAW workers Thursday in metro Detroit for the second time in recent months, is the best candidate to protect the U.S. industry and union jobs. The visit came after the UAW endorsed Biden for president on Jan. 24.

"This November, we can stand up and elect someone who wants to stand with us and support our cause,” UAW President Shawn Fain said in announcing the endorsement. "Or we can elect someone who will divide us and fight us every step of the way.”

 President Joe Biden travels aboard Air Force One to Detroit Metropolitan Wayne County Airport, Tuesday, September 26, 2023, in Romulus, Michigan. His trip to join the picket line of the UAW strike is broadcast on the TV news. | Official White House Photo by Adam Schultz

Trump also met last fall with autoworkers in suburban Detroit, but they were nonunion auto parts workers.

The next president will play a crucial role in defending Detroit automakers while helping them make the transition to electric vehicles. Most analysts say the move to electric vehicles is inevitable, but acknowledge the transition will continue to be bumpy for some time.

Dunne, the auto consultant and former head of GM’s Indonesia operations, said the federal government will likely need to enact temporary protectionist measures to give Detroit automakers some breathing room as they prepare to battle China companies.

That’s what the Reagan administration did more than 40 years ago to aid Detroit as Japanese automakers began gobbling up U.S. market share. But Detroit squandered the opportunity, failing to compete effectively with Japanese automakers.

"Detroit must dig deep to rediscover the determination to win — whatever it takes,” Dunn said.

Domestic automakers and Michigan’s economy can’t afford another case of déjà vu.