Virginia Governor Glenn Youngkin made national headlines recently when he rejected a Ford Motor
factory in a struggling part of the state, owning to Ford’s partnership with Contemporary Amperex Technology Co.
( CATL), a Chinese electric-vehicle battery manufacturer. Youngkin said the proposed factory was a “front for the Chinese Communist Party.”
A month later, Michigan Governor Gretchen Whitmer celebrated that her state landed the plant, saying, “It’s thrilling, it’s thrilling.”
Who is right?
The U.S. has always welcomed foreign direct investment (FDI). The U.S. is the largest destination globally for FDI at almost $5 trillion. FDI is a positive for the economy, creating 5.3 million jobs, boosting wages, and increasing productivity. It also — generally — strengthens U.S. manufacturing.
But in the case of Ford and CATL, such benefits are unlikely. This joint-venture appears to be constituted to allow Ford to harvest the tax incentives provided in the Inflation Reduction Act without getting FDI or even any technological return.
Instead, China is deftly manipulating the American system of healthy competition into a a game that sets two states with differing political party leadership against one another, with important consequences. U.S. policymakers, regardless of party, need to think beyond the traditional paradigm that new factories always create good-paying jobs in their districts.
China Inc. follows a different economic model: “socialism with Chinese characteristics.” This arrangement does not benefit the host nation, as we have seen repeatedly with China’s Belt and Road Initiative, which has left developing countries drowning in debt accrued for subpar infrastructure projects. China’s behavior on these projects has also been shown not only to have no economic development impact, but also to spread corruption around the community.
With Ford, China is trying to penetrate America’s auto and EV battery market, and they would be doing so with hard-earned U.S. taxpayer dollars. Everyone should sit up and take notice: China is not our friend, as if that weren’t abundantly evident from the spy balloon that recently traversed the U.S.
Congress and the Biden administration established tax incentives as a way to build domestic battery supply specifically to diversify away from overwhelming Chinese control of this technology. Department of Energy officials recently testified before the Senate, saying that their goal was to create battery and other energy supply chains with non-Chinese suppliers.
Yet Ford and CATL are clearly trying to evade the law’s intent and ultimately force U.S. taxpayers to supportCATL. Meanwhile, Ford would get cheaper batteries at the cost of helping China gain market share in the U.S. automobile market.
While the Chinese are experienced in the battery value chain, CATL would not be transferring battery fab tech to the U.S. at Ford, as is rarely the case with China and tech transfer. Further, they would bring in their own workers (if the U.S. provides visas, which it should not), as is typical with all the Belt and Road projects.
Those in favor of this deal believe CATL will be transferring tech to the U.S., but it seems evident they will not share their secret sauce: Beijing has stated it will review the deal “with an extra layer of national-level scrutiny” to ensure no Chinese technology is handed over to Ford. This is particularly ironic since an essential element that the Chinese insist on in any joint-venture in China is tech transfer.
Bottom line: although the Michigan plant would be technically owned by Ford, all the manufacturing, processes, and other components would be run by CATL. In other words, it would be a Chinese CATL plant in all aspects, except that Ford would legally own it so CATL can harvest the federal tax benefits.
It’s a bad idea to lavish American tax money on the world’s largest battery company. (CATL commands about 34% of the global EV battery market, with Chinese government subsidies equal to 20% of net income. Its market share is more than double that of its next-closest competitor, Korea’s LG Energy Solution
) Adding insult to injury, U.S. taxpayer funds would also make America’s battery supply-chain even more dependent on China.
What’s the alternative? Instead of CATL, Ford should partner with companies from allied countries such as Japan’s Panasonic
which already makes batteries for Tesla
in the US; Korea’s LG which makes batteries for GM
; and SK
for Hyundai. Stranger still, Ford already has a deal with SK factories in Kentucky, so why turn to an adversary?
China regularly steals U.S. intellectual property, accounting for 87% of all IP theft annually, equal to almost 3% of U.S. GDP. The U.S. International Trade Commission estimates Chinese IP theft has cost the loss of 2% to 5% of American jobs.
We are all for commerce and free trade when it’s fair. But the U.S. must not subsidize China’s state-owned enterprises as China works to kill our domestic EV battery industry, as they did with solar — another technology invented in the U.S. — in which China now has an 85% market share of modules, 80% of polysilicon, 85% of cells, and 97% of wafers, according to the IEA.
We encourage the U.S. Treasury, in forthcoming IRA tax rules, to prevent these sorts of structured transactions. Meanwhile, Ford and Whitmer should reconsider this project, which will damage America’s economic and national security.
Dabbar is CEO of Bohr Quantum and former U.S. undersecretary of energy for science. Nordquist is senior advisor at the Center for Strategic and International Studies and former U.S. executive director of the World Bank. They both serve on the advisory board of ClearPath.