Stellantis CEO Says Tariffs Won't Stop Chinese Dominance

I’m impressed that the Stellantis CEO has come out and said that the Tariffs are basically only band aid that don’t address the real problem and that is that Chinese car makers are making good EVs that can be profitably priced at around 1/3rd of what Western car companies can charge.

He has looked at making cars locally in the US but the cost of manufacturing in the US is so high that the result wouldn’t be competitively priced against vehicles made elsewhere.

What he has suggested is that to compete with China countries have to compete like China and bring down material and manufacturing costs so that the firms can compete in the short run this could be done with subsidies but, in the long run, innovation and a better strategy to acquire control (or prevent China from gaining control) of the critical materials EV plants need to function. 

Why Tariffs Don’t Work Long Term

When used correctly Tariffs work to overcome unfair trade practices like dumping products in a market below cost or government subsidies that allow a foreign or domestic company with a significant advantage to lose that advantage short term. But if the competitor isn’t doing anything illicit and the price advantage is one of lower cost of goods, lower manufacturing cost, higher efficiency, and greater technological advancement as is becoming the case with Chinese EVs, then Tariffs themselves become not only anti-competitive and against the best interests of the consumers (who would otherwise be receiving the cost saving of the better, cheaper products) or the competitors who won’t or can’t invest in the advancements and advantages needed in order to make them truly competitive.

In addition, when used as the US is using them, they effectively block Chinese vehicles from being sold in the US which means no money is being collected from the Tariff effort and thus no funds are freed up to invest in the infrastructure and improvements that the US Automakers need. This not only causes US consumers to pay more than they otherwise would for cars, but prevents the Auto industry, which sells globally, from becoming competitive against Chinese car companies globally.

The potential result of a Tariff plan like the one the US is using is the eventual collapse of the US Auto industry.

What The Plan Should Be

In short, the effort should be focused on helping US car companies become more competitive by securing natural resources they need so that these resources aren’t restricted by Chinese ownership (like rare earth metals are today) and help them design EVs for the future that can be cost competitive with what the Chinese car companies are producing.

This may require not only the uplifting of an industry to more modern plants and equipment but also work on AI technology to make the more costly US worker perform at a significantly higher level to their Chinese counterpart in order to overcome the lower Chinese wages. Lowering wages won’t work with the Unions so the path has to be to increase the value of the US worker to make up for their higher cost. 

The only other path for a company like Stellantis is to manufacture in a country which is a US trade partner like Mexico but while that addresses labor costs, there is a chance that, should the result be more competitively priced to Chinese products, the US might still Tariff them to protect domestic plants.

Wrapping Up:

Stellantis CEO Carlos Tavares is exactly right, while Tariffs can help solve illicit sales practices like product dumping, they aren’t the right tool for the competitive advantage Chinese EV manufacturers currently enjoy and are setting up the US auto industry for failure.

What is needed is a strategy similar to the one China has that aggressively assures the future of the US car industry, and I’d suggest other countries do the same because the US Auto industry won’t be alone should the Chinese-advantaged vehicles continue to roll out worldwide.

Tariffs are a cheat, best used to stop other countries from cheating, but when used to overcome a lack of competitiveness as they are now, they are a big step on the path of failure. The recent $1B fund to help build EV infrastructure is a step in the right direction, but alone, isn’t nearly enough.

Rob Enderle is a technology analyst at Torque News who covers automotive technology and battery development. You can learn more about Rob on Wikipedia and follow his articles on Forbes, X, and LinkedIn.