Meeting the China Challenge in Auto Supply Chains | Opinion

What to do about China? That’s a question that dominates nearly every major geopolitical issue of the day, from Taiwan to trade to the ownership of U.S. farmland.

And it is particularly relevant to the U.S. automotive industry.

This industry is at a critical juncture. Cars have become the nexus where technological, economic, and national security considerations intersect.

Inconveniently, but undeniably, China sits at that intersection as well.

China has become a major player in the global automotive value chain. Its vast manufacturing capabilities, coupled with its rapidly growing domestic market, have made it an attractive partner for automakers worldwide. This presents a challenge: how do countries like the U.S., which remain rightly wary of China, not dismiss the potential economic benefits of engaging with China while also remaining vigilant in protecting its national interests?

It is crucial that the automotive industry work closely with governments to establish clear boundaries and guidelines for collaboration with China to ensure the West remains a vanguard for innovation.

The U.S. government, particularly the Department of Commerce, has a vital role to play in this process. Through executive orders, such as the 2019 executive order on Securing the Information and Communications Technology and Services Supply Chain, the government can create a regulatory framework that addresses concerns surrounding China’s involvement in the automotive supply chain while underscoring the need for a nuanced approach to regulation.

It is absolutely essential that we safeguard against potential threats posed by Chinese involvement in critical sectors like automotive systems. But a one-size-fits-all regulatory framework could do as much harm as good to American automobile manufacturers. A surgical approach that targets specific areas of concern, while simultaneously fostering an environment conducive to innovation and competition, is the better choice.

Such a balanced approach to rulemaking requires precision and nuance. The U.S. should avoid a heavy-handed strategy that could stifle innovation, hinder economic growth, and strain relationships with allies. Regulators can use a scalpel just as effectively as a sledgehammer, and could carve out regulations that mitigate risk while also allowing for mutually beneficial partnerships.

For example, consider the difference between importing individual parts and entire cars. While sourcing complete automobiles from China may present a significant risk to U.S. national security, individual component parts pose a much lower threat. It would actually help U.S. carmakers to have a greater variety of original equipment manufacturers, granting them more options when it comes to parts sourced from China. By focusing attention on the most critical aspects of the supply chain, U.S. policymakers can effectively manage risks without unnecessarily disrupting the entire industry through burdensome or unrealistic regulations.

The U.S. can’t pretend that the automotive industry isn’t a global one, with complex supply chains spanning multiple countries. A blanket initiative singling out China without consideration of the downstream impacts will unleash a slew of unintended consequences and could harm U.S. economic interests. Should an engine—which has thousands of pieces and parts—that contains a small component made in China, but was assembled in, say, Canada be treated the same as an engine made entirely in China of entirely Chinese parts?

The U.S. should work with its allies and partners to develop a coordinated approach that addresses shared concerns while promoting fair competition and open markets among good-faith actors.

The power of the free market to drive innovation and economic growth remains unmatched. Holding fast to these principles as Western, democratic, and economically open countries navigate the challenges posed by China’s role in the automotive industry will be critical, but not without political challenges. By working collaboratively with industry stakeholders and our international partners, the U.S. government can and should develop a balanced approach that protects national security without sacrificing the benefits of global trade.

Mick Mulvaney served as acting White House Chief of Staff from January 2019 until March 2020.

The views expressed in this article are the writer’s own.