Should China EV Battery Makers Get Government Funding?

Should the Chinese EV battery making company Gotion High-Tech get benefits under the Inflation Reduction Act (IRA)? Rep. John Moolenaar (R-MI-2) wants to know. He asked two witnesses who were no strangers to Washington – former Secretary of State Mike Pompeo and former Secretary of Defense Leon Panetta – during a House Select Committee on the CCP hearing on Tuesday.

Pompeo didn’t mince words. “I’m against it,” he said.

Panetta was a bit more wishy-washy, but did not speak in favor of the tax benefits for adversaries. Rep. John Moolenaar from Michigan, who did not mention Gotion in his remarks, nor the IRA, has been quite public about his disdain for Chinese renewable energy juggernauts being on the receiving end of U.S. taxpayer funds.

“There are dozens of these projects taking place nationwide and I assure you China is not subsidizing U.S. companies operating in China,” Rep. Moolenaar said. 

“If we are going to provide funding, you have to be sure they are not being used to undermine our national security,” Panetta said.

For some who take the China perspective, Chinese companies are merely doing business with willing customers. But to the House Select Committee members, China cannot be trusted. To the two witnesses during the Committee’s first hearing of the year, the CCP uses American business deals and investment as a way to influence policy in favor of their multinationals.

“They’ll take good advantage of that situation,” Panetta said of Gotion’s plans to bring in some high level Chinese engineers to Michigan. Again, Gotion was not mentioned but it is the only Chinese EV battery company that Moolenaar has come out against. “We have to be vigilant about what is going on there. They’ll establish a manufacturing unit, and then they will use that for their own intelligence purposes and their own economic purposes and they will use it to gain (commercial) advantages that are counter to the interests of the United States,” Panetta said.

Pompeo agreed. “They will use this in ways that will leverage Chinese advantage. It should not be built,” he said.

Michigan awarded Gotion a $125 million grant and a 30-year tax break valued at $540 million to support their roughly $2 billion investment, expected to break ground this summer. It will later receive production tax credits under the IRA law.

This was the House Select Committee’s first meeting in 2024. Titled “Authoritarian Alignment: The CCP’s Support for America’s Adversaries” – the hearing often went off the rails with partisan attacks and rhetoric about yet another budget bill that is tied up over disagreements in the language over border funding, and sending more money to Ukraine.

There were a few noteworthy highlights, however.

Rep. Ro Khanna (D-CA-17) talked about reshoring U.S. manufacturing, and asked Pompeo if he agreed that the Nippon Steel purchase of U.S. Steel should not go through. He said Japan would never allow U.S. Steel to buy Nippon Steel in Japan.

“I’d like to bring more steel back to the United States,” he said. “Can we do a CHIPS Act for new types of steel production? We are not even a top exporter of steel; they are all in China,” he said.

The U.S. is not a top producer of steel, let alone exports. Nucor is the No. 1 producer here and is ranked around No. 16 in the world by steel production.

Pompeo was not convinced. Although he did not directly state his support for the purchase of U.S. Steel, he said he was fine with foreign direct investment into the United States by friends and allies.  On more production credits for steel (steel has the Section 232 tariffs at the moment), he said he could be convinced, but was not there yet.

“I supported CHIPS and (Commerce Secretary Gina) Raimondo has been fantastic on this because we had none of this technology being made at home. That is the model for when you use U.S. taxpayer dollars for an industrial policy – when the product isn’t here and needs to be,” he said. “If someone can make that case for steel, I’d support it, but I would wonder if it would work,” he said.

Rep. Khanna asked for Pompeo and Panetta’s thoughts on lowering the China trade deficit – he gave a target figure of 10 percent a year – to “rebalance this relationship.”

“I think it is very important for the United States to be able to develop industry, to develop manufacturing, and to make products here that are important to national security,” Panetta said. He stuck with that framing of the task at hand throughout the day.

“We hallowed that out and we need to make clear that we are going to develop the economic security we need and I think limits make sense as part of a package to develop our own capabilities, to develop our own industries,” Panetta said.

Pompeo agreed, saying he was not in favor yet with targeting all commercial items being traded between the two countries, but added “we should start with things that really matter (to rebalance) and then I’d be happy to think about trade relations more broadly.”

Democratic Rep. John Auchincloss from Massachusetts got into a heated argument with Pompeo, talking about how Republican voters no longer had trust in institutions here and abroad that governed the “rules-based international order.”

Pompeo didn’t flinch, as if he was waiting for someone to come at him with this.

“We cannot rely on these global institutions like the United Nations, World Bank…the World Health Organization, I can go on and on,” Pompeo said. “We have to revisit them and reevaluate our participation in those institutions.”

Panetta also responded, showing the different takes on the WTO along party lines.

“We have to make sure the WTO is strong enough to be able to say to China that when you engage in unfair trade you will be penalized for it,” Panetta said.