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Tesla’s love affair with China

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This is the web version of Eastworld, Fortune’s newsletter focused on business and technology in Asia. Subscribe here to get future editions in your inbox.

American companies spent an estimated $100 million lobbying Congress for China’s admission to the World Trade Organization in 2000. Two decades later, U.S. business leaders are so exasperated with the way their companies are treated in what is now the world’s second-largest economy that some have emerged as China’s harshest critics. Far from counseling President Donald Trump to exercise restraint in confronting China, many have egged him on—and offered suggestions for applying additional pressure.

Wall Street Journal reporters Bob Davis and Lingling Wei offer a vivid account of how corporate America’s romance with China soured in Superpower Showdown: How the Battle Between Trump and Xi Threatens a New Cold War. (The book is out this week; you can read a Journal excerpt here.)

Showdown makes for fascinating, if grim reading. On the U.S. side, to hear Davis and Wei tell it, business and government leaders alike naively assumed that, as China’s economy expanded and became more complex, its leaders would abandon central planning and industrial policy for a more freewheeling, market-oriented system resembling American capitalism. The Chinese, for their part, assumed the levers of American democracy to be completely controlled by banks and businesses, who wouldn’t dare risk their access to the world’s fastest-growing market.

Both sides got it horribly wrong. China’s communist rulers lost whatever faith they had in the magic of the American economic model after the Global Financial Crisis, and in 2013 chose as their “paramount leader” a man who distrusted markets and saw expanding the role of state-owned firms as the surest way to strengthen China and consolidate his own power. Then in 2016, Americans, in a rebuke to Wall Street and big business, elected a populist reality TV star who played to the resentments of working-class voters by railing against China and illegal immigrants.

The end result: a mutually destructive trade standoff that the authors suggest is unlikely to end even if Trump loses the election. “Trump has reinvigorated the use of tariffs,” they write. Any Democrat who defeats him “would inherit a world where the United States has tariffs on hundreds of billions of dollars in imports from China and other nations. No president would simply roll back those tariffs. He or she would want a lot in return, meaning that the trade fight with Beijing would continue.”

The authors argue that the “phase one” trade deal struck by the two nations in January, even if it holds, will not fundamentally alter the way China does business. China’s leadership, they conclude, “finds it increasingly difficult to cut a deal with Washington, whoever is president, without being seen as caving in to what it views as American hegemony.”


There is one American business leader, though, who remains very much in love with China: Tesla founder Elon Musk.

On Wednesday, Tesla’s share price soared 9% to $1,025, a record-high that put the company’s valuation within hailing distance of Toyota Motor Corp. The trigger for Wednesday’s surge was a Musk memo to employees signaling plans to begin production of the all-electric Tesla Semi truck. Tesla’s valuation has more than doubled since the beginning of the year, in defiance of the global pandemic, on expectations that the future of the global auto industry is electric. But that bullish view is buoyed by Tesla’s unique position in China, the world’s largest market for electric vehicles, where late last year Tesla began production of the Model Y compact sport-utility vehicle at its sprawling, $5 billion Gigafactory outside Shanghai.

Musk’s vow to deliver 500,000 vehicles globally in 2020 hangs in doubt after local authorities in Fremont, California forced him to close the Tesla Gigafactory there for more than a month to stop the spread of the coronavirus. He feuded publicly with the local sheriff and police department, then sued Alameda County before eventually reopening the plant in defiance of local health officials.

In China, his relations with government officials could hardly be more cordial. The Shanghai plant, which is financed by $1.6 billion in loans from Chinese banks, has been put on the fast-track for just about everything, including construction permits, regulatory approvals, and getting hooked up to the power grid.

In January 2019, after attending a groundbreaking ceremony for the plant, Musk jetted to Beijing where he met with Premier Li Keqiang in the party’s leadership compound in Zhongnanhai, next to the Forbidden City. Li offered to make Musk a permanent resident of China. Musk’s reply: “I love China very much and am willing to come here more.”

Those plans, as well as production at the Shanghai plant, were interrupted by the outbreak of the coronavirus in January. But within two weeks, the plant was back in business, thanks in part to local government officials who helped Tesla secure 10,000 masks and even arranged dormitories for plant workers.

Tesla sold about 11,000 Model 3 vehicles in China in May, up from 3,635 in April, according to the China Passenger Car Association. “Tesla has had a phenomenal run in China since opening the Shanghai Gigafactory,” said Michael Dunne, CEO of San Diego-based auto industry consultancy ZoZo Go. In China, “they’re just killing it.”

For more on the Chinese auto industry, don’t miss our Eastworld Spotlight interview with Dunne. Grady has a summary here.

More Eastworld news below!

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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