America can't build a green economy without China

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Roughly a century ago, when Henry Ford revolutionized modern car production, engineers from France, Japan, Germany and the Soviet Union flocked to Detroit to learn how to copy his miraculous methods. Ford's River Rouge plant, then the world's largest factory, ultimately inspired facilities by Renault, Volkswagen, Toyota and the Russian automaker Gaz. It also gave rise to the nightmarish wartime economies of World War II, when tanks, planes and toxic chemicals rolled off assembly lines worldwide.

Those engineers weren't just in Detroit out of curiosity. They knew they had to catch up to American methods. As one Weimar conservative said, Germany had to "study the means and mechanisms of the Americans" or become "America's prey."

Now, America is in its own game of economic catch-up — in the booming area of clean energy. As of this year, China is the world's largest car exporter — thanks to a surging electric vehicle industry — and it commands at least 74 percent market share in each step of the solar panel supply chain. China learned to master the solar, battery and electric vehicle industries through the 2010s, while the U.S. was debating whether to pass clean-energy policy — and even whether climate change existed at all. With the Inflation Reduction Act, the U.S. now has an opportunity to become more competitive, and nothing gets lawmakers from across the political spectrum pumped up faster than the prospect of crushing China.

But the U.S. cannot build a competitive renewable or electric vehicle industry from scratch. The history of innovation — and of the modern world, frankly — shows that American engineers will progress in these industries only when they can work with their Chinese counterparts.

Look no further than the pickle Ford is in now. By 2026, Ford wants to start selling electric vehicles outfitted with batteries made of a chemical cocktail known as LFP — lithium, iron, and phosphate — to the American market. LFP batteries can be charged more quickly and more often than the cobalt and nickel batteries that Ford uses today; they're also cheaper and more rugged and the minerals are easier to source.

But Ford has a solution. In February, it announced plans to open a new $3.5 billion LFP battery factory in Michigan. It would license the technology from a Chinese battery maker, whose engineers would — in the words of Bill Ford, the automaker's chairman — "help us get up to speed so that we can build these batteries ourselves." It seemed like a win-win: The Chinese company, CATL, would get cash and prestige; Ford would learn how to make these batteries; and America would get 2,500 new manufacturing jobs. This was, apparently, exactly the kind of situation that Biden's climate law was meant to set up.

Yet U.S. Sen. Joe Manchin, the West Virginia Democrat who helped shape the law, exploded at the news. "I'll be damned if I'm going to give them $900 out of $7,500, to let it go to China for basically a product we started," he told an energy conference in Houston. (He was referring to the subsidy that the law grants to buyers of new electric vehicles, though Ford says none of that federal money would go to the Chinese company.)

"You're telling me we don't have the smart people and the technology, and we can't get up to speed quick enough?" he asked. "That doesn't make sense."

Republicans, too, blanched at the partnership. Gov. Glenn Youngkin of Virginia, who had once angled to win the factory for his state, abruptly withdrew his proposal and lambasted the project as a "Trojan horse relationship with the Chinese Communist Party." U.S. Sen. Marco Rubio of Florida demanded that the Treasury Department evaluate the deal as a national-security risk.

But for all the overheated rhetoric, the truth is that free-flowing, in-person collaboration has been the fundamental mode of how technology moves across borders. With few exceptions, you either let yourself learn from your competitors, or you fail to compete with them at all.

We learned it first in the 1910s, when Germany had the world's greatest chemical industry. American chemical companies had to wait until after World War I to bring German scientists to the U.S. so that Dupont and Dow could learn to make chemicals as good as their German competitors.

We learned this lesson again in the 1980s when the Reagan administration pushed Japanese automakers to open factories with their American counterparts — which allowed American engineers to better understand the superior manufacturing model the Japanese had developed. Those initial factories were such a success — in one, labor input dropped to 19 hours per vehicle from 36 hours — that the model was adopted across the industry and the world.

As American engineers began to work with their Japanese counterparts, they marveled at how certain ideas and approaches eluded them until they could see the Japanese do it themselves. "Toyota instructs implicitly," a business-school professor observed. "They cannot tell you in words what they are doing, not even in Japanese."

In industry after industry, it is a similar story. To describe the crucial information that can't be written down in a book or described in a patent, social scientists use the term "tacit knowledge." We can use a simpler term: know-how.

Know-how is what makes our modern, technical society work. Doing surgery, refining a dangerous chemical or manufacturing a lithium-ion battery — they all require know-how.

And know-how is why Ford has, at last, sought out the Chinese company. Sure, Ford's engineers can study the chemistry of these more advanced batteries, but that won't help to make them, any more than memorizing the NFL rule book would make you Tom Brady. China is, for now, the world's No. 1 maker of electric vehicle batteries. Only its engineers can show Ford's engineers how to produce them in a fast, reliable way — and at a globally competitive price. That's true in all the other green industries, too.

Manchin and Rubio may find ways to discourage this kind of partnership. Under the Inflation Reduction Act, electric vehicle batteries produced by a "foreign entity of concern" are ineligible for the $7,500 electric vehicle tax credit. Although the meaning of that phrase remains unclear, one possible interpretation suggests that virtually any firm subject to Chinese law might be forbidden — meaning that even if Ford produced every part of a car in the U.S., the Chinese company's involvement might still disqualify the car's buyer from receiving the $7,500 tax credit.

But rejecting Chinese know-how would make us, ironically, more dependent on China in any future security-related rupture — because we will simply have to import from China what we never learned to make ourselves.

This is the kind of dilemma that Treasury Secretary Janet Yellen had to navigate during her recent trip to China — and that federal officials must negotiate for years to come. If American firms can't open factories with Chinese firms in the U.S., then the country's workers will miss out on jobs, its consumers won't get new technology and its engineers will fall behind the world's best. Competing with China is a good idea. Being so suspicious of it that you trip over your own feet isn't.