China’s BYD Threatens US National Security

CommentaryChina’s BYD is the world’s biggest electric vehicle (EV) maker by number of cars sold. According to a Nikkei report published on Feb. 14, a BYD subsidiary expressed “eagerness for a plant” in Mexico.BYD is looking at the northern state of Nueva Leon for a possible site, close to the Texas border and a straight shot to San Antonio via Highway 35.The Wall Street Journal reported sources on Feb. 16 that claim BYD would “consider” exporting to the United States from its planned factory in Mexico. That’s an understatement. BYD can barely contain itself over the prospect of selling in the United States, the second-largest vehicle market in the world after China itself.There are serious national security implications to admitting into the United States billions of dollars worth of cheap Chinese cars. They could further harm the American auto industry, thus hurting the U.S. economy, tax revenues, and the military. Simultaneously, expanded BYD sales would enhance China’s economy and tax revenues, therefore funding America’s greatest military adversary.In October, Europe initiated a probe into China’s EV subsidies. The United States could do the same in the near future. Either probe could result in increased restrictions on China’s exports. But Washington and Brussels are reacting in slow-motion based on liberal economic attitudes to trade with China that never should have continued after its 1989 Tiananmen Square massacre.Related StoriesCars from Japan in the 1970s and South Korea in the 1990s were a one-two punch against the American auto industry. They were our allies, but China’s communist regime is an adversary or worse. If the embattled U.S. industry is again hit by cheap imports—most imminently BYD EVs that sell as low as $11,000 in China—the results could be disastrous. As Elon Musk said in January, without trade barriers against Chinese cars, they will “pretty much demolish most other car companies in the world.”Mexican labor costs far less than U.S. labor, which faces unsustainable risks from a wave of UAW strikes last year. Higher wages for UAW workers are great for the very few who win them. But the strikes hurt the unemployed, bog down free labor markets, and chill investment in the United States due to increased costs to business, including the risk of debilitating strikes. Due to eroding conditions for manufacturing in the United States, companies are fleeing to Mexico, Vietnam, and India, where labor unions pose less of a problem.BYD has several advantages over U.S. carmakers, including approximately $4.3 billion in state support over the period from 2015 to 2020, soup-to-nuts vertical integration in mining, batteries, and semiconductors, price point product differentiation, pure and hybrid EVs, as well as cheaper design and components made in China and Mexico.U.S. investors who apparently care little about U.S. or allied national security, or the market democracies that made them, are funding BYD in its bid to outcompete automakers in the democracies. Warren Buffet was an early BYD investor with hundreds of millions of dollars. Most likely, the Chinese Communist Party will ensure that its billionaire backers make a tidy profit in the process.In 2023, BYD sold 1.57 million pure EVs—the most of any company in the world. BYD sells in places like the United Kingdom, Thailand, and the United Arab Emirates. In addition to manufacturing in China, BYD makes cars in Uzbekistan and plans additional factories in Hungary and Brazil, where it plans a lithium mine. BYD controls 43 percent of the EV market in Southeast Asia and plans a Thai factory that will start delivering in July.BYD’s one weakness is a stalling local market due to the faltering Chinese economy. Its subsidized EV makers, along with international rivals like Tesla, have thrown money at obtaining market share in China, including through price wars pushing some toward insolvency. So Beijing has encouraged them to seek yet greater markets abroad rather than compete to death at home or empower their own consumers to soak up extra supply.“China’s commerce ministry this month encouraged its EV makers to expand overseas, such as by tying up with foreign partners for research, logistics and supply chains,” according to The Wall Street Journal on Feb. 18. “Chinese auto suppliers will get credit from banks to support the push.”There are some signs that the Biden administration will do something to stem China’s dumping of overcapacity abroad. But the United States has been saying this for years while focusing on bringing inflation down and addressing climate change. China’s overcapacity in EVs could thus be welcomed by some because it addresses both problems, not to mention reorients its industry away from more powerful internal combustion that has dual military purposes.However, the move to Mexico by BYD is an end-run around U.S. tariffs on China. The tariffs BYD pays on cars shipped from China, 27.5 percent, would drop to just 2.5 percent for it