Tesla has been on the forefront of manufacturing electric passenger vehicles towards their vision of moving towards sustainable transport and energy through making electric vehicles and solar power mainstream. In 2020, China accounted for 20% of their vehicle sales, which makes them the second largest market for Tesla.
But in a recent directive by the Chinese government, Tesla products are now restricted to operate within the country.
Tesla was founded in July 2003 as Tesla Motors. Since then, they have arguably pioneered and revolutionized the Electric Vehicle (EV) industry. Elon Musk, the current CEO and the company’s face has led the company towards its vision towards manufacturing affordable mass market electric vehicles. From their first ever release with the Roadster, to their subsequent successful releases of the Model X, Model S, Model Y, and Model 3, Tesla has defined and become the leader of the Electronic Vehicle industry.
Tesla has also expanded fully being ahead in creating sustainable products as they acquired SolarCity as their subsidiary to enter into the solar photovoltaic market. One of Tesla’s formulas into being so ahead is having most, if not all, of their products developed and manufactured in-house. From vehicle batteries, motors, and the software that runs their AI systems, all are created within Tesla and are not outsourced.
As they also started to roll out more models, and as they develop everything within their sphere, Tesla has invested largely into creating facilities and factories for their manufacturing processes they call “Gigafactories”, Tesla operates factories in California; Tilburg in the Netherlands; Nevada; New York; Texas; Berlin, Germany; and Shanghai.
The Giga Shanghai is the first Gigafactory outside the US and the first in China (and by extension, Asia). This establishment was a landmark move for Tesla to break into the Asian market through China as this means Tesla products are being produced closer home.
But as Tesla moves aggressively to the East, the trade relations between China and the US have also been tensing up.
To understand the recent move of China to restrict Tesla products in their country, we must first get a glimpse of the colorful history between China and the United States.
China-US Trade History and Tensions
The two countries have always had a rather complicated history. All the way to 1949 when the People’s Republic of China was established, when the US backed the Nationalists against invading Japanese forces during World War II, to the US’ involvement of the Korean War in the 1950’s, the US freezing relations in 1989 amidst the Tiananmen Square Massacre, and other subsequent events through the decades, the two countries has been at odds that further strained their trade relations.
Let’s take a look at more recent timeline of events events that led to the Tesla restrictions:
In 2015, the United States warned China from further militarization over disputes on maritime territory of the East and South China Seas.
“We are strongly committed to safeguarding the country’s sovereignty and security, and defending our territorial integrity,” projected China’s Xi Jinping. However Taiwan, Japan, Philippines, and Vietnam are among those who asserted their claims of these territories.
The area sees over trillions worth of global trade flow and is very rich in natural gas and hydrocarbons, which is why China has also loomed over and marking their area.
2017 saw former US President Trump honoring the One China Policy with President Xi Jinping. The One China Policy is important for China-US relations as this lays the foundation for Chinese policy-making and diplomacy. The Policy is a diplomatic acknowledgment that there is only one unified Chinese government, instead of two states of The People’s Republic of China (PRC) and the Republic of China- which is the official name of Taiwan. Any country that wants to create a diplomatic relationship with China must sever independent ties with Taiwan.
The warm relations did not last long though. In a bold attempt to push his “America First” agenda in 2018, the Trump administration laid out tariffs on goods like clothing, shoes, and electronics that amounted to as much as $60 billion in Chinese imported products to the US. He also accused China of “high-tech thievery.” Later that year, Chinese products from the industrial and transport sectors, as well consumer electronics and medical devices were faced with a sweeping 25 percent import tax. China retaliates with laying tariffs on food products like beef, soybeans, seafood, and dairy, amounting to about $34 billion. Trump’s administration believes China is “ripping off” the United States while Beijing criticizes the US for “trade bullying.”
2018 was also the year when telecommunications giant Huawei was put on the international spotlight. On December 1 of that year, the chief financial officer of the tech company, Meng Wanzhou, was arrested in Canada by the request of the US government, citing violations of trade sanctions against Iran and commitment of fraud.
By 2019, the US banned Huawei altogether, restricting American federal agencies from using equipment from the tech company citing threats on national security. Huawei counters with a lawsuit against Trump and the United States saying they were not afforded due process. The battle gets aggressive as the US government released the Entity List- a trade blacklist consisting of certain foreign persons, entities, or governments which are restricted and banned to do business with any organization that operates in the United States. The “Huawei ban” sanctions Huawei to be unable to work with companies like Google, Intel, Qualcomm, and the like.
The Trump administration once again raises tariffs from 10% to 25% on $200 billion worth of Chinese imported products. China retaliates by also increasing tariffs on $60 billion worth of American goods.
This back-and-forth trade bickering forced the Chinese central banks to weaken the Chinese currency — yuan — thus prompting the US to designate China as a “currency manipulator”. Beijing warns that the designation will “trigger financial market turmoil”.
Political tensions also arose further straining US-China relations as Trump signed a bill supporting the Hong Kong pro-democracy protesters. The bill authorizes the United States to sanction individuals responsible for human rights abuses in Hong Kong. China condemned this move and imposed sanctions on several U.S.-based organizations, and suspended U.S. warship visits to Hong Kong.
2020 was welcomed with the two countries relaxing their trade war. The US dropped the “currency manipulator” designation and the leaders of both countries signed a deal to ease up on some of the tariffs imposed on various imported products.
The chummy relationship did not last long; tensions once again soared as the world got hit with the COVID-19 pandemic. Trump closes the border for all non-US citizens, especially those who have visited mainland China. Officials from both countries enter a blame game, with China inconclusively saying that US military personnel brought the virus to China, while Trump repeatedly refers to the coronavirus as the “Chinese virus”.
In July, Trump ends Hong Kong’s special status, as China imposes a new national security law, cracking down on pro-democracy protesters and Chinese government critics. This prompts China to put the foot down and threatens the US with retaliatory sanctions if they keep meddling with Chinese internal affairs.
The Trump administration has also closed down the Chinese consulate in Texas and, in a not-so-shocking move, China retaliates with closing down the US consulate in Chengdu.
In the final months of his administration, Trump has ramped up Chinese sanctions by adding dozens more Chinese companies in the Entity List and tightening visa rules on the around 90 million members of the Chinese Communist Party among other things.
The Tesla Restrictions
Now, flash forward to 2021 and this time it’s Tesla that’s caught in the crossfire.
The Chinese government made a move now to restrict government and military personnel, and employees of key state-owned companies from driving and using Tesla products. The electronic vehicles are now banned from entering or coming into proximity of government, military, and state-owned company compounds. China cites that the sophisticated omnidirectional cameras, sensors, GPS, and location tracking mechanism that aid Tesla’s AI systems can be used for espionage and leaking sensitive information. Fears also arise that the location tracking systems can give away areas and bases that the state would rather keep confidential.
Elon Musk denies the allegations, stating, “there’s a very strong incentive for us to be very confidential with any information,” he also reassures investors and stakeholders by further saying, “if Tesla used cars to spy in China or anywhere, we will get shut down.”
This move comes at a very interesting time when Chinese-owned electronic vehicle developer NIO is poised to rival Tesla in China. NIO, founded in 2014 by William Li, has been giving Tesla some serious competition in the Chinese EV market as they also have been aggressively releasing their own line of electric cars. As the world’s literal largest automobile market, Tesla has some serious competition in capturing the Chinese market, and with the move of Tesla being restricted in China, this might bid sorely for them. It’s not an unprecedented move by China if they really do want to keep things homegrown.
However, looking back at China and the US’ complicated trade history, the Tesla restrictions are not looking good for NIO as well if they want to enter the American and Western market. As both countries continue to take jabs at each other, it will come to no surprise if the use of NIO in American roads will also be restricted, if not banned.
What do you think? Will America also retaliate against the Tesla restrictions and ban NIO? How will the continued back-and-forth trade war of the US and China affect the rest of the world? Let us know in the comments section below.
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