We Don't Have to Trade With China

To wit:

The Canadian government is considering a surtax to prevent Chinese electric vehicles from flooding the market, just as the U.S. and the European Union have done recently. But there’s much more at stake than just the competitive position of the North American auto industry. Looking back at recent disputes between China and Western democracies, it’s clear that security issues also need to be considered.

The U.S. government recently decided to ban the social media app TikTok if it isn’t sold to a government-approved buyer, in part because it collects user information that could get into the hands of the Chinese government. For its part, the Chinese government has long banned the use of Facebook, Google, YouTube and many other American tech services in China.

In 2021, China directed government employees to stop driving their Teslas to work because cameras and other sensors on the vehicle could be used to obtain sensitive information about the facilities the car was driven into, like a military base or highly sensitive research campus.

More recently, the U.S. government has expressed concern that “connected cranes” in American ports could be hacked by foreign adversaries because of the sophisticated software they use and the reams of data they generate.

A few years ago, governments in many democracies, including Canada and the U.S., banned the use of Chinese-made telecommunications equipment, including from Huawei, because of similar concerns. In 2018, the U.S. banned the use of Chinese-made security cameras at military bases for the same reasons.

Do you see a pattern?

These actions are a part of the massive technology decoupling that is under way between the autocracies and the democracies. It doesn’t extend to most Chinese-made products you can buy in Walmart, such as shower curtains. Equally, China has no such concerns about the agricultural products they buy from Canada.

High-tech goods, however, pose an altogether different risk profile, especially if the item or service collects data, images, and other information. This is what the products and services noted above have in common.

This is also precisely what EVs do today. The typical EV, whether made in China or elsewhere, has about a dozen cameras (some inside as well), a similar number of ultrasonic sensors and radar, and literally several thousand semiconductor chips that operate software and collect and process vast quantities of data, including geolocation information. A foreign government getting access to this tech environment – or a foreign hacker – could find out all sorts of things about drivers, their environs, their contacts and their employers.

Or the foreign government might order the car company to implement a software hack, causing all cars to immediately cease operation, perhaps during the early stages of a national security crisis, such as a diplomatic or military confrontation over the future of Taiwan.

These concerns are real and should be taken seriously by the democracies, just as the Chinese government did when they directed certain government employees to stop driving their Teslas to work. Moreover, the danger is not diminished if the Chinese EV is made in Mexico, just as the TikTok risk is not solved by having data stored on a server in Singapore rather than Shanghai.

These concerns, and several other similar ones, will drive the democracies to eventually eliminate trade with China involving modern technologies. This will be an unfortunate end state, because trade in high-tech offerings between China and the democracies could be a huge win-win for both camps.