100% tariff could backfire on US, hurt legacy automakers

Markham interviews economics Professor James Sallee with the University of California at Berkeley and a Faculty Affiliate at the Energy Institute at Haas.  On Tariffs and the EV Transition

What is Energi Talks?

Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.

Markham: 00:04

Welcome to episode 312 of the Energy Talks podcast. I'm energy and climate journalist, Markham Hislop. Last week, president Joe Biden introduced 100% tariffs on the import of made in China electric vehicles. They're a part of a larger package of new and raised tariffs on various clean energy technologies from China. As you can imagine, a vigorous debate has begun about the wisdom of those tariffs.

Markham: 00:30

On the one hand, defenders argue that the US auto sector faces an existential threat from low cost, heavily subsidized EVs from the likes of BYD. There's also the strategic goal of lessening American dependence on Chinese supply chains. On the other hand, we have critics like today's guest, economics professor James Salley with the, University of California at Berkeley and a faculty affiliate at the Energy Institute at Haas. So welcome to the interview, James.

James: 01:04

Pleasure to be here.

Markham: 01:06

This is man, this is fascinating stuff. I it's like it's like being back in the 18th century and watching the industrial revolution unroll and, you know, unfold in real time. It's that I I don't think I have this debate with Canadians all the time, and I I think it's a different debate down in your neck of the woods, because you're in Berkeley. But Canadians haven't caught on as to how quickly the global economy is restructuring, particularly the global energy system in which electric vehicles fit because they're a a demand source for for electricity. And this spat between the US and China just it's like 2 behemoths pummeling each other.

Markham: 01:54

I do what's your take on that?

James: 01:57

Yeah. I think, that's that's behemoths pummeling each other as a as a as an apt description, probably of where US and China economic policy is, is at at the moment. I I just to echo the thing you led with, I think there is a real possibility of dramatic and rapid transformation. I think if you look at the transportation sector in particular, we're at a point where electric vehicles in many dimensions are at parity. They are better.

James: 02:31

And the and and the result of electric vehicles having achieved parity with internal combustion engine vehicles in most ways and in most situations is is evidenced by the rapid ascension of electric vehicles in a number of places, and North America lags behind, is behind even the global average now in electric vehicle penetration, which is brought up heavily by China as well as a few pockets of places where that are that are well ahead. And, as a result, I think depending on where you sit in North America, you might not be noticing, this transition, but it it is happening and can happen much faster than a lot of people realize.

Markham: 03:14

There's a strategic issue here, and, I've had the opportunity to read speeches over the last couple of years by, secretary of commerce Jane Gina Raymundo, Janet Yellen, Brian Deese, the former economic adviser to to, president, Biden. And one of the things that's really, I think, compelling is this everybody gets that there was a China shock that happened with the offshoring of of, US manufacturing and, how peep you know, so many Americans lost their jobs in the in the Rust Belt and and just how traumatic that was. And now suddenly we've there's the specter raised of a second China shock as it's being called, which is China coming for legacy automakers. And it's not just the ability to put together a vehicle in in the US. It's the supply chains.

Markham: 04:20

And and all of the direct and indirect supply chains. I mean, this automobiles and transportation in general could, you know, that would this includes buses and heavy duty trucks and all sorts of things. But that really is the last bastion of industry, heavy industry. And if China destroys the US manufacturing capacity in these areas, the argument goes that it will be militarily vulnerable. You know?

Markham: 04:57

Think of Europe, European allies, in the second world war, how the Americans basically outproduced the the axis and then emerged in 1945 as the preeminent industrial power in the world. That what do you make of that as a justification for slapping on these these tariffs?

James: 05:16

Yeah. I think, well, let me let me zoom out to where I'm coming from and just say the the concern over the tariffs and the the tax that the administration is taking right now. The concern is, I think, few people would disagree that the moves we're taking right now are going to have, at least in the short run, 3, 5 year timeline, are gonna slow some of our decarbonization plans. It's gonna make it harder to electrify vehicles. It's gonna, make it harder to, import solar cells to electrify the grid.

James: 05:54

All the things where we're making progress, and we should celebrate the progress we're making, but there is no there's a need to go even faster, towards the energy transition. So that's the concern. And then the question is, are are the long run benefits enough to outweigh that? And I think that all of the points that that you're raising are certainly legitimate concerns. There is a a national security, an economic stability, case to be made for ensuring the survival and, and and flourishing even, of particular industries within industries within the United States, or North America more broadly, especially as most of this is sort of a NAFTA catchment, in particular for the auto industry.

James: 06:45

But I think there's just a lot of reason to be concerned, about our ability to execute this policy in an effective way. But I do think there's there's no doubt that there's a a consensus view that has emerged that's quite different from many economists and policymakers' attitudes, you know, 20 years ago, that you really think about some of that supply chain stability. And I think COVID really kinda made that a salient issue for a lot of folks who who didn't normally think about the nature of global supply chains. And so, certainly, there's a legitimate concern. And I think, the question is how do you go about addressing those concerns in a smart and strategic way and not in a a reactive way that that kinda lets the industry stagnate in a way that that leads to bad outcomes in the long run.

Markham: 07:42

Would you argue that the Biden administration's basically taking a a bad strategic approach to this?

James: 07:56

I my belief right now is that the size of the tariffs and the the stretching of those tariffs, not just to cover finished automobiles, but to hit things up the supply chain, is probably moving a little too fast that we need we need to continue to import more of these things for some time horizon. They've created a schedule of these tariffs that were set to hit more slowly, in the future more gradually, I think, would probably be a smarter timeline. I also worry that the strength of the tariffs that they've put in place, last week and announced gives a little takes a little too much pressure off the domestic legacy automakers, and gives them kind of an an ability to to slow down and and take a take a breath more than I think is probably prudent. I think we need some appropriate level of fear and anxiety to force innovation on those firms that they are gonna be reluctant to do, and their shareholders are gonna be reluctant to see, the short run costs that are needed to be made and investments to to catch up and and move towards the future.

Markham: 09:12

Will enough pressure be applied to those legacy automakers by the loss of markets elsewhere? And what we're seeing in China, which is the world's largest auto market at the moment, is the plummeting market share, of of brands like Jeep and VW and, Ford and and so on. I mean, they're just being shoved out of the market at an alarming rate. I was reading just this morning that, the April, new energy vehicle sales, which is how the Chinese describe them, are now at 47% of retail sales in in China, and they're expected by next month or the month after to get to 50%. So they're getting shoved out of out of the Chinese market for sure.

Markham: 10:05

That I think appears obvious. They also seem to be under threat in other markets like Europe because now we've got Chinese EVs there. And they it seems when the BYD chairman said that they were, you know, they were out set out setting out to kill the internal combustion engine and the legacy automakers, Even if they have they keep the North American market, it seems like they're doing it everywhere else.

James: 10:36

I I think that's right. So and and I, in the sense that and and the legacy automakers' exposure to the global market is is highly variable. Right? So Ford's international portfolio is significant, but but less so than GM. They're more reliant on the US domestic market for survival.

James: 10:58

And then, of course, CELANTIS is a more complicated conglomerate at this point. But the prospects of what will happen in Europe are very much up in the air, so we I'd I I'm not gonna forecast this, but it's quite it is definitely a possibility on the table that Europe will raise tariffs that are similar in spirit and design, if not quite the magnitude. And, at that point, you know, you can imagine the automakers feeling like they can sort of bite out their time in those, markets. But what's what's I think I think what you're alluding to and I think the the state of affairs that everyone needs to come and realize is that as far as electric vehicle production, the Chinese have made a tremendous amount of progress and are producing very good viable products that when set down head to head to compete with US automakers, do quite well. And there's no reason to think that that edge will be eroded, without something dramatic from the legacy automakers.

James: 12:08

And that includes the European automakers as well who need who are facing, you know, Volkswagen, BMW are facing similar, strategic dynamics, as what we're talking about here in North America. And to a the I do believe and hope, from the sake of the the the climate, that we are in an in a phase out of the internal combustion engine and and an an ascendency of electric vehicles. And if that's the view, then I think the policy question for the United States is not how do we stop BYDs of the world from killing internal combustion engines, but how do we make sure that the US automakers have a good share of the electric vehicle market of the future? And are we making choices today that are gonna lead to that, or are we simply slowing the decline of of their global share? And I fear that we may be doing a little too much of the latter.

Markham: 13:09

I I would agree with you, and, let's take a little bit of a survey, look around the world at at the auto industry. So in North America, we've got GM Ford and and Stellantis who are kinda bumbling their way along in the in the transition to electric vehicles. Over in Europe, we've got some of the the German manufacturers who are are doing okay at the premium level. Mhmm. You know, they Volkswagen.

Markham: 13:34

That's right. Volkswagen has not figured out its software and figured out how to do a a small cheap EV yet, but it, you know, it's it's kind of bumbling its way there. Then we we look at the Japanese, who have been very, very reluctant to embrace electric vehicles. They they they want even Nissan, which has had the leaf for what now? 12, 14 years?

Markham: 14:01

You know, you'd think that they would have been, hard on electric vehicles, but not so much. They've been also cautious, but Toyota, in particular is, you know, and Honda just don't real really don't wanna get dragged into the into electric vehicles. And and then we have Hyundai, the Hyundai Kia group in in in South Korea, which is just knocking it out of the park. I mean, we just saw recently, you know, the, the the EV 3 is go is coming. It'll be a $32,000 base model in the US, so take off 7, $8,000 with subsidies, and you're down to a mid twenties car.

Markham: 14:38

Now you're competitive you're competitive with the Chinese. And and then we have China, which is just crazy. I mean, the, you know, the the battery costs are coming down. They're talking about, like, 56 dollars a kilowatt hour for, for lithium iron phosphate batteries, which, you know, it's nuts. Okay.

Markham: 14:58

So if you're looking if you're China and you're sitting here, okay, I'm playing I'm playing, electric vehicle, new energy vehicle chess, and I've got the Americans are in disarray. Canadians, you know, are just an ad and the Mexicans are just an adjunct to the Americans. Europe is you know, we're already we're already in that market in a in a big way, and we're not gonna they're not gonna shut us out. We're we're okay in Europe. Japan is not is not a threat in the in the short to medium term, but they can't get their act together.

Markham: 15:32

Only the only real competitors to China are Tesla and Hyundai. And China then looks around and goes, okay. We control, solar panels, wind turbines, battery storage, every well, global south. Hello. How many billions of consumers are in those emerging markets, which, by the way, OPEC said would be the last bastion for the oil industry?

Markham: 16:02

China China has absolutely obliterated OPEC's modeling and its world oil outlook 2045. If I'm looking at China, I'm playing 4 d chess, and the rest of us are playing checkers.

James: 16:15

Yep. Sounds like a good thesis to me, I must confess. Oh, okay. I I think that, that, the and and that's where I think it the the question is if if that's what's going on, and I I think there's a lot of, to like about that thesis. And the question, I think, for US policymakers and kind of the the impetus for this conversation is, what are they doing to counter that?

James: 16:43

And is throwing up protectionist barriers something that's going to actually be lead to the US legacy automakers being competitive in 5 or 7 years in those markets or not? Or is it something that's gonna allow them to kinda retreat, focus on things that the North American consumer is still willing to pay a premium for for the next 5, 8 years, slow down their transition to EVs. And and I'm really interested in figuring out designs of the policy where we try to leverage what the Chinese have already learned, and use it to strategic advantage instead of instead of viewing it strictly as something to be shut out, against. And I think the on the political side, a real concern for me is the tenor of the debate and the conversation around the Chinese economic, or Chinese businesses, in general, where there's a a sense that the smart thing for the US to do is to simply keep them away from us as much as possible instead of saying, they figured out a lot of stuff. They've made a lot of advances.

James: 17:57

How do we learn from that? How do we leverage parts of their supply chain that they're subsidizing? How do we how do we take the cheap batteries that they're subsidizing, put them into our cars, and then compete with them in Brazil? Like, I I don't think that's the way that the conversation's going in Washington DC right now, and I fear that we're have too much of a reactionary belief that if we simply rest you know, use the inflation reduction act subsidies and, throw up some barriers that magic will happen. And in 5 years' time, we'll be in a different strategic position.

James: 18:33

And I'm not convinced that's gonna happen without some other layer of of strategy or some other layer of innovation that's happening.

Markham: 18:41

There is a a substack, written by a fellow named Kyle Chan, who is an expert on China, and he writes about many of these kinds of issues. And he wrote a a substack that I thought was provocative, and I'm not sure I agree with his argument, but he basically said, look, you know, American companies can buy components out of the supply of Chinese supply chain just as well as the Chinese companies can. You know, if they want, like, as you just said, if they want cheap batteries and with high, a high energy density, you know, go to China and buy them. It's not it's not that hard. And he said, don't worry about it.

Markham: 19:18

The the the auto legacy automakers are gonna be just fine. They're gonna figure this out, and and they'll take advantage of they'll learn to leverage the the Chinese supply chains to their own advantage. I think Kyle Chan gave them a whole those legacy automakers and policymakers a whole lot more credit than they deserve.

James: 19:37

Yep. I I I worry a lot about them being able to pivot and and learn in that in that manner in a quick at a quick time scale. And in particular, if they don't feel the pressure I mean, I think they do feel the pressure right now. And even with these trade barriers, they still feel the pressure for the reasons you've been mentioning. Even if they've even if we erect an impenetrable wall around the North American market, that is just a slice of the of of the world, and they have to compete directly in these other domains.

James: 20:05

But I am not convinced that, on their own well, I'm just not convinced that the the the legacy automakers will, be in-depth at at learning all these lessons.

Markham: 20:17

I wanna run something past you because I'm often, asked to comment on what's going on in Alberta, which is the Texas of of Canada, because there, the provincial government has essentially erected a a stasis field around the oil and gas industry and the and the power sector. And my argument is that the these companies are faced with the incumbent's dilemma. So when a competitor arises and, you know, the oil industry has never had a competitor in its 125, 150 year history, but now it does in the form of electricity. When it a competitor arises and begins to disrupt its business model, it has basically has three choices. It can adopt a new business model, it can reengineer its existing business model, or it can double down on the status quo.

Markham: 21:04

And it seems to me that the oil and gas companies in Alberta are the epitome of that doubling down on the status quo strategy. And I wonder, you know, because incumbents gatekeep. Boy, do they gatekeep. They they manage change to their own advantage like nobody else. And I wonder if there isn't a a bunch of that going on.

James: 21:29

Absolutely. And I I I mean, I think, well, without a doubt, I think, there is a well, there's an economic rationale or not. The incumbent automakers most certainly welcome to these protectionist, moves. It's, and and so I think without a doubt, there's a that dynamic is, at play here. The thing I would say is just, you know, there's there's one state of the world where we say what we really want is we wanna make sure that if BYD is selling cars in North America and we're worried about jobs and we're worried about learning from them, then what we want is for them to produce those cars in North America, and we want them we the supply chain, we wanna leverage the best technology available and all the current know how, the the learning.

James: 22:25

We wanna harness all the learning that's happened over the last 20 years, but we want US jobs attached to that. Then there is a onshoring argument. And I think that if you look back at the legacy of the the Japanese and then subsequently, Hyundai Kia, There's a balance of what gets imported from abroad and what gets produced within North America, including, you know, some parts of that supply chain, but final assembly happens, for a lot of those vehicles within North America. And I think that that is a I think that equilibrium that they reach, I don't think you could seriously argue that if they had if US policy in the 19 eighties and through the 19 nineties had shut out the Japanese automakers and not let them compete and come into the country that consumers would be better today. I think the mix of product offerings, the competition, the the the the innovation that was forced on the legacy automakers as a result of facing that competition and trying to catch up and learn from them, both about production technology and also about what kind of cars people might want in different segments of, of the market.

James: 23:33

I think all of that is hugely important, create a lot of consumer gains. It did put pressure on jobs, and I think, you know, unions would maybe take issue of what I just said because a lot of that new production ended up in, right to work states ended up in with less union coverage, although we see a bit of a resurgence of, union activity today. And And so I think I would invite people who are really worried about China to think forward and and try to say, what's a world where we'd be globally competitive, consumers would be better off, the climate would be better off? Is that a world where we've got some sort of integration and there's a significant amount of Chinese supply chain that's partly been onshore to the United States and partly comes, via imports. And there's a part of, assembly that happens here, And there's some balanced mix, versus a world where we've done everything we can to keep them out completely, and and avoid head to head competition within North America, which is and it's it's it's a a gut, you know, political mood and feeling right now that I, I I I think across both parties in in the United States, and the industry that says what we want is just China out.

James: 24:51

We want, do we wanna onshore everything, but not via collaboration with the Chinese? We just wanna reinvent the wheel, and get there on our own. I worry about that as an as a method.

Markham: 25:03

Let's flip this argument on its head for a moment, James. And, one of my favorite economists is, Mariana, Muscato. And in her book, The Entrepreneurial State, which I think came out in 2016, she said, do not do not listen to what the Americans say about the role of the state in the economy. Look at what they do. And what they do is they spend enormous amounts of public capital derisking new technologies to the point where the the private sector will pick it up and run with it and and and and commercialize it and scale it.

Markham: 25:43

And given the amount of public capital that is now flooding the US markets in from the inflation reduction act, from the chips and science act, from the infrastructure, infrastructure bill, and then there are state bills, like California spends a ton of money in in this area. And I wonder if there isn't enough of that capital going back into the innovation ecosystem that that is really the engine of the American economy, I think. And we will see in the coming years innovations that have come out of the lab and that are being commercialized that allow the American automakers and whatever other startups emerge from that, like Tesla did, that allows the the US to compete against, China in a way that is not just straight up, you know, tin banging and put in an electric motor and call it a car. Is that innovation ecosystem a secret weapon?

James: 26:50

I so I think that that hypothesis, has some appeal. I think it has a real chance of being true that there is a lot of innovation potential, and I don't mean to, discount it. There's a huge risk, also, which is that I think the money pumping into that innovation ecosystem that's directed at electric vehicles, that's directed at battery developments, constructive clean energy, is politically contingent. And that even though a lot of it is authorized under the inflation reduction act, there is, you know, an election coming up in November, and with a a a change of party in control of the executive branch and, the White House here in the United States, could very well lead to the retention of the trade barriers and the at the same time as the whittling away of the the push towards the renewable side, and, that that could easily lead towards at least a, you know, 4 year or, longer, retrenchment, of progress in this direction, which I think, could really, imperil, the ability of the US automakers, and that whole industry to be moving towards a long run global globally competitive position, where they currently, lack. I I think the the idea that we got behind, and we need need to catch up.

James: 28:22

We need a little bit of buy ourselves a little bit of time. There's some merit to that, and and the reason why that might work is because there is this powerful set of innovation incentives, and there's a lot going on. I mean, there's a lot of exciting developments. I'm not sure that if we have battery breakthroughs here that it will be particularly difficult for the Chinese to incorporate those into their, supply system. And I think for the climate, that's good news.

James: 28:51

Like, we wanna actually there there's a there's a view for the climate that there's a race to the top that we were trying European partners that they needed to actually kind of do something similar. So it was a version of the race to the top where we're all subsidizing our our own clean energy, industry and pushing innovation and then trying to compete with each other in the global market. And there's a very slightly different version of that where we silo off the world into a few separate columns that are that are doing innovation and and trying to produce only for their own sake, but we're not getting the benefits of those that that global competition where an innovation and advancement in one place ends up flooding the market, everywhere. And if you're interested in the climate, you want one version of that, and I I I think we might have it, but we might fear running into the the opposite.

Markham: 29:48

Let me give you another hypothesis. So 40 years ago, probably, James, you were still in short pants. I don't 40 years ago, I was doing my graduate work at the University of Saskatchewan. My thesis title was was the transition from power and, sorry, from, steaming horses to power farming in Saskatchewan in 1900 to 1930. The whole point of it was that the, you know, the the the big steam tractors that were introduced in the the around 18/95 led to iterations.

Markham: 30:21

So you went from big steam tractors then to big gas tractors then to small gas tractors just before World War 1. Then the Fordson comes out in 2017, 2018. Now you have a tractor based on automotive technology. It's competitive. It's it's cheap, and it just spreads like wildfire during the 19 twenties.

Markham: 30:39

Then you have the combine that you can pull with the Fordsen and that no longer have a threshing crew and and machines, and then that low all of that lowers your costs. And there is data, which, I act I I have the the data and and the charts that show as tractors and combo as tractors rise, horses and mules fall in the US until by, you know, 1950, there are almost no horses and mules, and everybody's got a tractor or 2. Right. My my point here is that once technology develops along the bottom part of the s curve, and then it hits the inflection point, and it is now competitive with the dominant technology. And if it continues to develop, so the cost, you know, costs are lower, sorry, purchase price is lower, Operating costs are lower.

Markham: 31:31

Value goes up. Risk goes down. You've got a runaway train. And and then it's, you know, climate policy be damned. This is all about economics now.

Markham: 31:42

It's just better technology at lower costs Yep. And you can't hold it the mark you can't hold that market back. And I argue that stuck that really around 9 2019 sorry. 20 yeah. 2019, 2020, all of the major clean energy technologies pass their inflection point.

Markham: 32:01

Like, we're we're now on the hawk on hockey stick growth. And who wins that race? Who who can ride that, that hockey stick up with all of the various technologies and establish industries and supply chains, all of that, that's the winner. And climate policy will determine the pace of that change, but the change is inevitable now. It's done.

Markham: 32:26

It's just like horses and and, and mules in in the United States. They're toast. Take them to the glue factory. And that's kinda how I see this. And we're not fighting for you know, we are fighting, of course, to to, you know, limit global warming and climate, climate crisis.

Markham: 32:48

But, really, at the fundamental of this, this is who has better technology at a lower cost, and it if it's is it gonna be North America and Europe, or is it gonna be China? And that's my hypothesis. What do you think about that?

James: 33:02

Yeah. I I guess, well, I certainly agree with the idea that we're we're at a point where clean energy has caught up and surpassed. And so in particular, on the power production side, I mean, I think we see when solar, beats new thermal generation, and we're working out the storage to deal with intermittency so that can continue to rise, as a share of of power generation and and different grids. And that we have a we we've we've passed a point of parity with electric vehicle design in in most dimensions. And I see lots of reason to think that that'll keep getting better.

James: 33:44

Battery packs keep declining, in price, and lots of reason to think that there's an ascendancy there and a marriage between the 2, of course, because cheap, clean electricity, makes the EVs even more appealing over time. So I agree completely. And and if that's the world we're in, then I think the question on policy design is is how are we positioning our industry so that they're competitive on the technology that's gonna that's gonna win. And the fear is that we're kind of trying to hold on to our video rental stores, in a world where, streaming has arrived. And and we're saying is we'll we'll erect some barriers so that Blockbuster Video can figure out its business model and and catch up, and, we'll have to see if they can do

Markham: 34:35

that. There's an epilogue to my story.

James: 34:38

Mhmm. And I

Markham: 34:39

don't talk about it very much. But back in the 1910 to 1930 period in Western Canada, there was a thriving, small equipment manufacturing base. They made threshing machines, some of them tried tractors, they made plows for for power farming, all of that kind of stuff. And it was reminds me a lot of the kind of innovation and and, you know, entrepreneurship that's going on in China. All of those EV makers, they can be at a100 now.

Markham: 35:16

Had 700 at one time. Now they're down to a100. Here's my point. The Americans, because they had a much, much bigger base to begin with, plus they had enough heavy industry. They could get things you know, they could get steel cheaper and all of that all of that stuff.

Markham: 35:33

They ultimately triumphed. You know, the market spoke, and it said, we prefer John Deere. We prefer Caisse. We prefer international. And poor old, you know, JA Stanley threshing machine went bankrupt.

Markham: 35:47

And all of that ecosystem of entrepreneurship and new technology that was going on in Western Canada, hoaxed. The only ones that survived were, like, Massey. You know, Massey, we have the Massey Harris, which then it got a I forget which where it it eventually wound up in the fifties or sixties. But Canada played that game. And back in the days before industrial policy and and tariffs and and in in the space and lost and lost badly as as a consequence of it.

Markham: 36:18

And it seems to me there's a lesson here.

James: 36:23

Yeah. Well, what did you think the lesson was? Because I I think, you

Markham: 36:26

know hoping you'd tell me what the lesson is.

James: 36:28

Well no. But I I think I I guess my view of this is that, we should work backwards from what it looks like to be competitive 10 years from now. And I think that requires a mindset that's focused on learning from and and partnering with at at times and collaborating with, industry leaders. And I think the US doesn't naturally take to the idea that on certain dimensions of technologies that China is the leader. It's not just the leader because somebody's unfairly subsidizing or they're taking an advantage of unfair labor practices, which may be true, but it's not the only thing going on that there's some real things to learn about the design of electric vehicles because the United States was very good at building internal combustion engines, and there's still a mindset of, like, how you design cars from top to bottom, the entire process that's built around a model that is outdated.

James: 37:29

And it's not it's gonna be decreasing in its relevance in the future. And so I think we really need to be making a strategic shift and say, how do we learn from what the Chinese have put together in their supply chain and their vehicle design and the way that they think about and design electric vehicles and market them, how they're incorporating technology into their vehicles, that we need to say, what can we learn from them? And it's a humbling position to take that American companies and American politicians certainly aren't used to taking. And I think they need to say, we need to actually learn from them and not just shut them out. And I think, you know, there's an analogy perhaps, to the to the the the coda to your tail you were just giving and saying if there's an opportunity to collaborate with, these industry leaders, how can we do it?

James: 38:22

And I think there is there are models. There are there isn't there is an attitude that says we really wanna encourage partnerships. We really wanna encourage joint venture. What the Chinese did, the automobile industry starting back in 19 nineties, was insist on joint ventures so that the global automakers would come in, build things in China where China could learn. Some people would say, steal the IP.

James: 38:45

We'd call it whatever you want, but they, they caught up by partnering, learning from, and now directly competing with. And I think we need to acknowledge that on electric vehicles, not necessarily internal combustion vehicles, but on electric vehicles, trying to know some things that we don't know and has taken advantage of, some scales and some learning and is pushing the frontier. And we need to make sure that we're thinking how do we take advantage of that instead of how do we how do we just try to shut it out.

Markham: 39:15

I just thought of the lesson that I

James: 39:17

Okay. Great.

Markham: 39:18

Learn from that story. I interviewed a fellow named, doctor Bentley Allen, who is a professor at John Hopkins University, and he's a he's a specialist in modern industrial policy. And one of the points that he makes is that modern industrial policy is very different than the old style where you just pick a national champion and protect them with tariffs. He said it's all about collaboration, collaboration between the the manufacturers and the policy makers and the bankers and the and the local folks who have to provide infrastructure and all of that. And you and you get and you come at it, and then first of all, you say, what is our strategy?

Markham: 39:59

What is it? You know, in in the, in with the legacy automakers, is it to turn you into EV makers? Is that the strategy, Or is it to do something else? Well, let's all agree on what it is, first of all. Then you pick the policy tools that you need to accomplish the strategy, And it's all very collaborative.

Markham: 40:16

That's the word that stuck out when you were talking, just now that really got my attention is collaboration, and much more of a collaborative approach as opposed to just a a policy approach, the way it used to be. And I think that we need to start having some of those conversations about strategic approaches to this, to the energy transition. And in, you know, in North America, I mean, I know in Alberta, god, you know, they're they just deny that there's an energy transition, or it's gonna be 30, 40, 50 years down the road. Don't worry about it. It's just and so I think a steely eyed view of the energy future and the fact that we're not number 1 anymore.

Markham: 40:59

We're not even be number 2 Yep. Truth we're told. And then as and then how do we strategize around that so we get back to being competitive? I think that's the lesson.

James: 41:09

Yep. Well, I agree. I think that's, I and I I you had me on because I wrote a piece that that took kind of a critical view of the current policy, and I I will readily acknowledge that there are some difficult nuance trade offs. But I think the thing I feel strongest about is that everything I can see from the policy discussion and the politics around China and the auto industry in the US, I see very little sign of enthusiasm for collaboration. I see a lot of sign for viewing everything as a sort of winner take all, or not a winner take all.

James: 41:56

Excuse me. It's a zero sum game, I think, and where the goal is, to simply shut out, China where I think there needs to be a pivot in that mood, if we're gonna survive in the long run.

Markham: 42:12

You know, I've learned after doing, all of these 312 episodes of, the podcast, James, that when you finally when when the the the host and the guest agree, it's time to stop the interview. Perfect. So, like, thank you very much. So this has been a a very fascinating discussion, and and I I hope that there are a lot of people who listen to it because we need to do things differently. It's not very we North Americans have grown, you know, pretty fat and lazy over the last 80 years since the World War 2, and and China is now coming for our lunch, and we need to acknowledge that.

Markham: 42:46

So thank you very much for this conversation.

James: 42:49

Pleasure to be here.