E-Mobility and Trade Wars

Are China and Europe engaged in a 21st century arms race?

The Corona crisis shows how vulnerable individual economies have become as a result of globalisation. Dependence on China, the workbench of the world, is dangerous for two reasons: First, various products are now manufactured almost exclusively in the People's Republic. This applies, for example, to the very widespread painkiller Paracetamol. If there are production stoppages or export restrictions in China, bottlenecks can quickly arise in the rest of the world.

Second, Beijing repeatedly wields imports and exports as a political weapon. Most recently, China reduced its imports of meat from Australia. The reason was that Australian Prime Minister Scott Morrison had called for an independent investigation in the megacity of Wuhan, where the virus pandemic first broke out.  

This is not the first time that the Communist Party of China has reacted in this way. A few months ago, ships carrying Australian coal were no longer unloaded in Chinese ports - an act of revenge for Canberra's exclusion of the Chinese telecom group Huawei from expansion of the 5G network in Australia. On the export front, several years ago China cut back its exports of rare earths, causing prices to skyrocket. These special metals are used in all kinds of products - from smartphones to wind turbines.

More independence from Asia

Numerous politicians and companies are calling for a reduction of these dependencies on China - at least for products that are essential. Margarete Schramböck, Austria's Minister of Economics, for example, pleads for "production back in Europe." This applies above all to key industries such as semiconductors, batteries, hydrogen and the pharmaceutical and healthcare sectors. Schramböck thus wants to become more autonomous from Asia - i.e. China - and fight unemployment at home.

The former Telekom Austria manager is by no means alone with her demand. Even before Corona, her German colleague Peter Altmaier was already campaigning for the production of batteries for electric cars in Europe. In the meantime, factories are springing up here.

The French Minister of Economy and Finance, Bruno Le Maire, is putting pressure on Renault and PSA, the owner of the Citroën, DS, Opel, Peugeot and Vauxhall brands, to bring their production back into their own country. Renault currently must be kept financially afloat by the French state. The pressure from Paris is therefore not only verbal but also very real. In Japan, there is even already a state return premium for companies that relocate their production facilities from China back home.

Companies are already reacting

The pressure is not limited to the political side. Various companies have already started to realign their supply chains themselves - also because customers are demanding it. Google and Microsoft are allegedly planning to move production facilities from China to Thailand or Vietnam. The barcode specialist, Zebra Technologies, has already announced concrete plans to reduce its production in China.

In Europe, various car manufacturers have started to launch their own production of battery cells. Volkswagen currently has the most extensive plans for this; however, that will not be enough. Setting up its own battery production is insufficient if there is a lack of battery raw materials.

So far China has been buying huge quantities of lithium on the world market. Despite not having any significant reserves of its own, the People's Republic has a 59% share of the world market for processed lithium, i.e. carbonate and hydroxide, according to the raw materials experts at Benchmark Mineral Intelligence.

Blueprint China

The People's Republic is thus showing what a secure supply chain looks like. Seamless procurement for the construction of electric cars can only be ensured in Europe if so-called converters, which process lithium, are also located here. Since there are hardly any deposits in Europe, the battery raw material must be imported from safe countries of origin such as Australia or Canada.

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