Two weeks after Ford Motor Company’s CEO, Alan R.
Mulally, mused publicly about developing electric vehicles
in China, a U.S. senator has proposed a law to stop
American businesses that receive federal funds from what
he terms “giving away” taxpayer-funded Intellectual
Property to the Chinese.
Sen. Jim Webb (D-Va.), soon to retire from a single term
in the Senate, proposed the legislative language as an
amendment to the controversial China currency bill just
approved by the upper chamber. While the Senate kept the
bill amendement-free, expect Webb to look for a new
carrier in the frenzied final months of his tenure.
As Sen. Webb recently stated on the Senate floor, absent
national security imperatives, “if a private company has
developed technology on its own, and it makes a business
decision to transfer that technology ... in a place like
China ... we are obligated to respect the free
marketplace. But it’s a different case,” Webb went on,
“when the American taxpayer has financed the development
of these technologies through federal funding assistance.
While Ford publicly touts that it took no federal bailout
funds in the fall of 2008 – even running television ads
condemning its Michigan competitors Chrysler and General
Motors – the automaker has not been so vocal about the
$5.9 billion loan guarantee it received from the
Department of Energy the following year to upgrade to
“green manufacturing” technologies at five Ford plants in
the American Midwest.
What caught Webb’s eye in Ford’s potential partnership
with China was that the car manufacturer must now share
proprietary processes for electric vehicles as the price
of admission to the Chinese automotive retail market. As
the senator noted, “Federal dollars that go toward R&D
funding ... are supposed to be making American businesses
competitive and generate American jobs – not ... help
develop other industries, such as those in China.”
Companies in the U.S. rarely admit they’re handing over
the recipe to their secret sauce; yet China’s “indigenous
innovation” policy, which aims at reducing dependence on
foreign technology, coupled with a see-no-evil stance
toward IP piracy create conditions where trade secrets are
near impossible to protect.
Given that none of this is news to U.S. companies, why
would Ford or any other information-intensive enterprise
want to manufacture in China? For years, the attraction
was lower wage rates; today, there is mounting evidence
that the wage gap is narrowing, to the point where
manufacturing will begin flowing out of China and back to
the U.S.
So if lower labor costs are no longer the attraction,
what is? The magnet drawing American automakers to China
these days isn’t metaphorical: It is quite literally the
Rare Earths magnets and other metals-based components
critical to batteries and parts necessary for mass
electric vehicle production. Just as we have seen with
solar panel and wind turbine producers, China has the
metals – and where the metals are, manufacturing will
follow.
At present, China accounts for 97 percent of global Rare
Earths production, while the U.S. – once the world’s
leading Rare Earths supplier – provides less than 1
percent. It’s not that the U.S. lacks Rare Earths
reserves: Data from the U.S. Geological Survey shows China
holds 36 percent of the world’s Rare Earths reserves,
while the U.S. is home to 13 percent. In fact, until
mining commenced late last year at California’s Mountain
Pass mine, the U.S. had not produced a single gram of Rare
Earths since 2002. As metals analyst Jack Lifton puts it,
“China didn’t gain a monopoly in the rare earths. The U.S.
gave it to them.
Getting back into the game isn’t easy - not when the U.S.
ranks dead-last among 25 mining nations, hobbled by a
ball-and-chain permitting regime that takes 7 to 10 years
to bring a new mine into production.
For American automakers who don’t have 7 to 10 years to
wait for American-mined resources, Beijing’s message is
unmistakable: If you want access to critical metals, we
strongly suggest you set up your manufacturing plants here
in China. And don’t forget to bring us your Intellectual
Property on a flash-drive.
Indeed, Ford’s move was followed just days later by
Honda’s announcement that in response to “rare earths
supply concerns” it would expand its China production of
hybrid and plug-in electric car components - itself a
response to a similar move by Toyota last month to end-run
rare earth export quotas by expanding Prius production in
China. In a story first broken in the Beijing media,
General Motors - beneficiary of a $50 billion infusion
from U.S. taxpayers - has joined with General Electric to
develop and build electric car charging stations in China,
a move book-ended by GM’s September deal to develop a new
electric vehicle platform with its Chinese joint venture
partner.
Even if the Webb amendment does becomes law, will a few
new lines in the U.S. Code stem the flow of U.S.
intellectual property into China? Not as long as China
holds a near-monopoly on the critical metals needed to
make next-gen electric vehicles a global reality - and not
so long as America’s deep-set denial about the need to
develop its own resources gives companies like Ford little
choice but to play by China’s rules.
With apologies to soon-to-be-former Sen. Webb, who at
least is focused on the problem - and to Sir Winston
Churchill, grammarian - the U.S. can pass all the laws it
wants, but we can’t have a resurgent domestic
manufacturing base if we lack the materials manufacturing
is based upon.
