As the U.S. government's trade war with China heats up, it looks like it soon might spill over into electric cars.
Chinese state-run media outlets have begun threatening that the government will impose new tariffs on rare-earth metals used in the permanent magnet motors in electric cars as well as capacitive touch screens and electronic capacitors and microchips—all abundant in electric cars.
Tesla has already struggled with the Chinese tariffs on cars, and now things look set to become more difficult for electric-car makers outside of China. Such a move may put more upward pressure on prices of electric cars, just as battery prices were expected to fall to parity with prices of internal combustion powertrains and accelerate the adoption of electric cars.
Zytek's 70kW electric motor. Image: Morgan Motor Company
The latest escalation comes in response to the Trump administration's ban on government agencies using equipment from Chinese electronics giant Huawei,
China produces 80 percent of the world's supply of rare earth metals, which are considered "rare" not because they are uncommon but because they are uneconomical to mine.
If China raises tariffs on exports of rare-earth metals, companies are likely to turn to Australian supplies, where mining companies are making big investments in increasing the supply of those elements. Still, as one of the world's largest electronics markets and the second-largest producer of electric cars, the U.S. may need more rare-earth metals than Australia can supply.
China has not yet implemented such new tariffs, but such signaling from the country's state-run news agencies in the past has foreshadowed new actions by the government in the absence of any breakthroughs in trade talks. China's People's Daily said, "We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!"
The "don't say we didn't warn you" phrase preceded the recent border stand-off with India as well as China's invasion of Vietnam in 1979.
The trade war has already started. The Trump administration imposed a 25 percent tariff on imported washing machines and solar panels in January 2018, and followed up with aluminum and steel imports last September. China retaliated with tariffs on U.S. cars, soy beans, wine, natural gas, and other products.