Source: Blog – Alliance for American Manufacturing
A Tesla showroom. Photo by Open Grid Scheduler on Flickr
Elon Musk isn’t letting credible accusations of genocide get in the way of business.
On Dec. 31, electric vehicle maker Tesla posted a message on Weibo, a Twitter-like website in China: “On the last day of 2021, we meet in Xinjiang. In 2022, let us together launch Xinjiang on its electric journey!”
This was no ordinary corporate post. Tesla’s announcement was stunning, as the company proclaimed that it is opening a brand-new showroom in Xinjiang, the same place a genocide is being undertaken by China’s government, according to everyone from the U.S. State Department to a special tribunal in the United Kingdom to Canada’s Parliament to numerous human rights organizations.
And it was especially galling because just eight days earlier, on Dec. 23, President Biden signed a historic piece of legislation to ban imports from Xinjiang. In an era of intense partisanship and divide, the bill had widespread bipartisan support, with the Senate passing it unanimously and the House giving it the OK in a 428-1 vote.
Because of the genocide in Xinjiang — along with the unraveling of democracy in Hong Kong, growing national security concerns and a number of other issues causing rising tensions between the U.S. and China — much of corporate America is now at an inflection point when it comes to China. But by opening the showroom in Xinjiang, Tesla proclaimed to the world where it stands.
As AAM President Scott Paul told Bloomberg on Monday: “Any company doing business in Xinjiang is complicit in the cultural genocide taking place there. But Tesla’s actions are especially despicable.”
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Tesla is hardly alone when it comes to doing business in China, of course.
Apple’s Tim Cook signed a $275 billion deal to placate China’s government and maintain its operations and sales there, according to The Information. Nike has dismissed concerns about its operations in China, claiming that it will “continue to invest in China while also operating a very responsible global supply chain.”
Indeed, American corporations spent the past two decades abandoning factories in the United States to make their products in China. From 2001 to 2018, around 3.7 million U.S. jobs were lost because of trade with China.
But in recent years, conventional wisdom about China has changed. China’s entry into the WTO failed to liberalize its economy or open its market. China’s government has only become more authoritarian since it joined the world economy two decades ago.
And it’s just become impossible to deny the atrocities that are happening in Xinjiang.
More than 1 million people, most of them Uyghurs or members of other ethnic Muslim minority groups, have been detained by Chinese authorities. Advocates allege that children have been taken from their parents, while many women have been forced to undergo abortions or sterilization. Allegations of torture and other abuse run rampant; mosques and other cultural sites destroyed.
In addition to these human rights abuses, China also stands accused of using forced Uyghur labor to support manufacturing in Xinjiang, and many Western brands stand accused of being complicit. The Australian Strategic Policy Institute named 82 companies benefiting from forced labor there, including names like Apple, Nike, Amazon, H&M and more.
All of this led Congress to pass the Uyghur Forced Labor Prevention Act, and Biden to sign it. Under the new law, imports from Xinjiang are banned unless companies can “proactively prove that their factories, and those of all their suppliers, do not use slavery or coercion.”
There’s no doubt that this law has the potential to upend supply chains, since so much stuff is made in Xinjiang, from the cotton that ends up in so much of the world’s fast fashion garments to polysilicon used in solar panels. As the New York Times noted, it may take a lot of companies by surprise to learn just how much of their supply chain runs through Xinjiang. That means implementation is going to be a challenge and many corporations are likely to lobby to weaken it.
But there’s also been some notable shifts when it comes to corporate America and China. Some companies – including Yahoo, LinkedIn, and even Hollywood studios – exited the country. Other corporations appear to be trying to break away from Xinjiang but maintain a presence in China. That strategy is proving difficult.
Walmart pulled produce from Xinjiang from its stores in China, only to face a backlash; the same thing happened to Intel when it told its suppliers not to source from Xinjiang – and Intel even apologized for it. Pretty pathetic, but China’s government has made clear it will punish Western companies that do anything about Xinjiang, and the appeal of China’s massive market is enough to keep many of them in line.
Which brings us to Tesla.
As the Wall Street Journal reported in December, Tesla now makes more than half of its vehicles in China. This is by design, and at the request of Chinese Leader Xi Jinping, who rewrote the rules “to allow foreign companies sole ownership of auto ventures so [Tesla founder Elon] Musk would open an electric-vehicle factory in Shanghai. Authorities showered him with cheap land, low-interest loans and tax incentives.”
Why would Xi be so generous? Because China’s goal is to dominate industry, and it was lagging behind when it came to innovation. The U.S. began tightening technology exports to China in 2018, and China needed a way around it.
Enter Elon Musk, who was viewed as “a technology utopian with no political allegiance to any country” who would be able to “groom local suppliers and bolster lagging Chinese electric-vehicle players.”
In return for market access, Tesla must follow strict data laws, including retaining “inside the country all digital records gathered from local customers, and it must ask authorities for approval before updating certain software on cars in China… Tesla thus finds itself falling within a familiar historical pattern, in which Beijing uses a grant of access to its vast market to advance China’s own industrial capability.”
Nevertheless, Musk has become “a high-profile cheerleader of China’s ruling Communist Party.” While in the United States he regularly criticizes President Biden, gets high with podcast hosts and engages in unfair labor practices, he is all business when it comes to China, and has publicly praised the country’s leadership.
Knowing all this, that new showroom in Xinjiang makes a lot more sense. Musk understands that the only reason Tesla is operating in China is at the behest of China’s government – Xi literally rewrote the rules to allow the company to set up shop there – so it’s in Tesla’s best interest to keep Xi and his government happy.
What better way to show your loyalty than by showcasing your Chinese-made vehicles in a region the United States government is now aiming to economically weaken?
The problem, of course, is that there is a genocide happening there. To repeat what Scott Paul noted above, any company knowingly doing business in Xinjiang is complicit in what’s happening to the Uyghurs. Tesla’s actions are especially despicable.
But even that may not be enough for Tesla to keep access to China’s market.
As Bill Russo, founder of Shanghai-based consulting firm Automobility, told the WSJ: “China’s game isn’t to let Tesla win. China’s game is to make the domestic industry compete.”
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