By Dale Buss
As if proliferating spy balloons and insidious TikTok feeds weren’t enough, America’s economic relationship with China also is going to get more complicated. And as usual when things are really important, Flyover Country will be right in the middle of it.
The Chinese are posing new national-security threats all over, and one of those areas is in economic development. Consider China’s strategy for establishing manufacturing outposts in the United States via our need for electric-vehicle batteries, and apparently a Chinese plan for boosting its food supply by grabbing up rich farm acreage in the American heartland.
In Texas, for example, there is proposed legislation that would bar land purchases by governments, businesses or citizens of China. That’s because Chinese investors owned more than 338,000 U.S. acres at the end of 2020, according to a Wall Street Journal investigation, about five times its ownership a decade earlier. That still comprises less than 1% of all U.S. farmland held by foreigners. At the same time, China remains the biggest market for American agricultural exports.
On the factory side, the fact that China is the world leader in automotive-electrification technology, and that the Chinese government is willing to invest billions of dollars in new EV-battery plants and partnerships in the United States, makes it problematic for states to turn up their noses at the potential bounty in property taxes, jobs and knock-on benefits.
Take what has happened in the differing approaches between Michigan Governor Gretchen Whitmer and Virginia Governor Glenn Youngkin over a potential multi-billion-dollar investment by Ford and its would-be Chinese partner, CATL, to build batteries in the United States.
The Politics of China
Youngkin, a Republican, pulled his state from consideration, citing CATL’s ties to China’s communist party. But Whitmer, a Democrat presiding over the first Michigan government fully in control by her party in 40 years, forcefully stepped into the fray and made it clear the Wolverine State would gladly welcome the Ford-CATL plant. And just this week Ford and Michigan indeed announced that the Chinese-partnered plant is destined for a shovel-ready site in the south-central part of the state, with $1 billion in taxpayer incentives to do so.
Of course, politics in addition to national security has come into play in this equation in a significant way — this of the red-blue-purple variety and related to raw electoral considerations. Both Youngkin and Whitmer are presumed potential candidates for their parties’ presidential nominations next year.
While calling Youngkin’s move a “political determination,” Whitmer in an interview stressed that Ford “is an American company” and a “Michigan company” and said, “We are going to compete for every opportunity for the state of Michigan.”
There were complicating factors for Whitmer. One of them was that Michigan already had issued incentives on a bipartisan basis to China-based battery company Gotion to build a component-manufacturing facility in Big Rapids, Michigan, which is expected to create 2,350 jobs.
And, second, the Whitmer administration came in for some criticism after Michigan’s most venerable automaker promised $11 billion in new investments in EV and battery plants, and nearly 11,000 jobs — not to Ford’s home state but to Kentucky and Tennessee.
Not entirely surprisingly, Midwestern states that compete heavily with Michigan for plant investments aren’t necessarily following Youngkin’s presumably patriotic lead.
“We welcome high-quality companies of good global standing and that are not deemed to pose national-security risks,” Brad Chambers, Indiana’s economic-development secretary, told me — not exactly slamming the door on Chinese-owned enterprises. “The companies that are good for Hoosiers, that are consistent with our focus on building an economy of the future with high-wage careers, should get serious consideration.”
Some other states already have basically painted themselves into a corner on this issue. South Carolina, for instance, is home to a big car-assembly plant for Volvo, which is owned by China’s Geely Holdings. “We’ve kind of moved past that issue,” David Ginn, president and CEO of the Charleston Regional Development Alliance, told me, despite the fact that Charleston Air Force Base isn’t too far from the Volvo plant.
Yet, other states, especially in Flyover Country, are piling up on Youngkin’s side of this divide, especially now that the Biden administration and Congress have slated billions of dollars in federal incentives for American companies to build into the domestic EV-battery supply chain. Tennessee recently withdrew financial incentives for potential Chinese plants, and similar moves have been afoot by officials of Florida and Alabama.
What Japan Did
In the 1980s, Japan Inc.’s strategy for retaining access to the U.S. auto market was to proliferate plants across America, enlisting political support from U.S. senators and representatives, governors and ordinary citizens in each state along the way.
The Japanese were seeking an end to the frustrating “voluntary” import quotas the Reagan administration imposed on vehicles made in Japan. Toyota and Honda vehicles were thoroughly besting American-made ones in the eyes of consumers, and the federal government was trying to help out its domestic automakers.
Japan’s answer was to begin making its cars in America. Honda built a sprawling plant in Ohio; Toyota put an assembly facility in Kentucky and forged a joint venture with General Motors in California; Nissan erected a factory in Tennessee; Mitsubishi went into Illinois; and Mazda even put up a plant, with Ford, near Detroit.
And what do you know: After a decade, Japanese automakers had invested $25 billion in eight new auto-assembly plants and many other U.S. facilities that created more than 100,000 American jobs, and the import issue quietly went away even as Japanese brands kept gobbling up market share from domestic car companies.
But our quotas on Japanese car imports were part of an economic war. America’s budding confrontation with our biggest geopolitical rival is that, yes, but potentially could become an actual war. And already, China is on the precipice of essentially controlling how U.S. industry enters the crucial era of electrification of civilian — and perhaps military — transportation.