Electric Car Diplomacy

As public and private interests in the United States increasingly advocate for greater production of electric cars, the manufacturing and trade of lithium-ion batteries could set the stage for another arena of competition between the United States and China. One question for nations that rely on importing parts for electric cars, such as the United States, is how to best negotiate trade terms that do not elevate prices for consumers as a result of their increased demand. Given that only 26 percent of the batteries used in electric vehicles are produced in the United States, the United States and others must resolve the existing issues in their extensive trade negotiations before a giant influx of these cars can hit the road. Beyond batteries, electric cars contain about 6,000 different components subject to manufacturing processes. One key competitive electric vehicle market that the United States and China must compete for is the European market, since many European nations—including Norway, the Netherlands, Sweden, and France—are rapidly increasing their usage of electric cars. As nations face the dilemma of an expensive product in short supply, the United States and China have positioned themselves in a global competition to become the primary exporter of electric car components.

The shortage of lithium-ion batteries has resulted in price increases that have impacted trade negotiations. Lithium batteries have been plagued with safety issues, exacerbating their short supply. The combination of the decrease in supply of these products and the increase in demand from consumers around the world has been a point of contention for trade negotiations. Prior to the recent international push for electric vehicles, China dominated the lithium-ion battery market with US$46 billion of production in 2021. While China still leads the global market, the United States is closing the gap on lithium-ion battery production, jumping from sixth in the world to second in the world from 2020 to 2021 and expected to tie China’s output as soon as 2026. The impending trajectories of lithium-ion battery production should be a reason for both the United States and China to learn lessons from their analogous competition in solar panel production. While both lithium-ion batteries and solar panels have seen a recent push by leading global manufacturers, driving an increase in demand, the primary difference between these commodities has come in the United States’ response to China’s dominance. While China leads the world in the production of both, the United States has seemingly conceded the solar panel competition, instead focusing its efforts primarily on lithium-ion batteries. This geopolitical competition in the area of lithium-ion battery exports is in its nascent stages and should continue to intensify as electric vehicle demand increases.

As European nations such as Norway, the Netherlands, Sweden, and France increase domestic purchases of electric cars, it becomes more important for the United States or China to install themselves as the primary exporter of electric car parts to these countries. Norway in particular is the current global leader in domestic electric car consumption with 46 percent of its vehicle fleet being composed of electric cars. Thus, Europe represents an important region of influence for the United States and China, as the exporting of electric car parts can spill over to other areas of diplomacy and international relations, such as controlling another nation’s domestic supply of goods and strengthening bilateral and multilateral ties. Much of the push for electric cars has been rooted in climate change rhetoric as electric vehicles produce fewer emissions than traditional gas-powered vehicles. As such, the economic and trade gains that the United States or China can derive from reaching agreements with European nations means that the new lead exporter could significantly influence European climate policies, which has major economic implications for international trade agreements and domestic European product consumption. These many potential benefits, as well as the time sensitive nature associated with the increased demand, mean that any upcoming negotiations between European nations and lithium-ion battery exporters are of the utmost importance.

Whether electric car production is perceived as a public sector environmental initiative or as a private sector revenue generator, its implications for international trade are significant. The lithium-ion battery production associated with this increase in electric car demand provides an emerging area of great power competition between the United States and China. As the seller market heats up between these two nations, the buyer market is soon to follow suit as European nations ramp up their purchases of electric vehicles. These unique circumstances have set the stage for a diplomatic and economic competition that will be one to watch throughout the 2020s.

Cover Image: April 8, 2021. Photo by Michael Fousert, image usage is under Unsplash license, accessed via Unsplash.