The US should take Musk’s China entanglements much more seriously

Over the past five years, it has become abundantly clear that the U.S. has no appetite for international trade and commerce that hollows out American manufacturing, nor the tolerance for American companies growing foreign markets at the expense of American national security. 

The Biden administration’s export control measures targeted at nipping China’s semiconductor industry in the bud is a fine example of that change in American trade and foreign policy. 

While there are not many policy issues that can be worked out across the aisle in Washington these days, policies involving China, trade and national security revive hope in bipartisanship in Washington even in these polarized times.

However, with policymakers stepping into what was historically the arena of businesses through export control measures, they have unknowingly invited business leaders into policy affairs. A case in point is the new commentator on world affairs, Elon Musk.

Recently, Musk offered some unsolicited advice on the security challenges in the Taiwan strait by recommending “a special administrative zone for Taiwan that is reasonably palatable.” Subsequently, China’s ambassador to the United States, Qin Gang, thanked Musk for his suggestion in a tweet, calling for “peaceful unification and one country, two systems.”

Interestingly, soon after he shared that wisdom, he went on to suggest that his company SpaceX would no longer be able to provide Ukraine with its Starlink services unless it receives funding from the State Department. He has since pledged to provide the services to Ukraine regardless of State Department funding.

Widespread speculation has mounted in both social media and policy circles, raising suspicion about Musk’s newfound interest in world affairs and notably, his words and actions that seem to support the causes of nefarious actors in world affairs such as China and Russia. Moreover, it is not just a single decision or an interview that raises the specter of doubt on the possibility of a quid-pro-quo arrangement between Musk and China. Factoids noting that Tesla was the largest recipient of Chinese subsidies in the electric vehicle (EV) category in 2020 do not put those doubts to rest.

There is widespread speculation about the motives behind Musk’s comments on Ukraine and Taiwan. But besides Tesla’s glaring market and business interests in mainland China, critics have failed to examine Musk’s business interests with Chinese companies in third countries. 

For example, one of Tesla’s most critical battery suppliers is China’s CATL. The company has grown to become the largest producer of lithium-ion batteries and as of early 2022 controlled over 35 percent of the market thanks to clients such as Tesla. In countries such as Indonesia, Tesla is capitalizing on the benefits offered by the local governments while simultaneously leveraging Chinese state-owned enterprises and their capital for mining activities. 

Indonesia holds the world’s largest reserves of nickel, a vital mineral for batteries and electric vehicles. Tesla’s $5 billion investment into the nickel processing industry in Indonesia made headlines. However, the high likelihood of those contracts essentially going to Chinese companies has been overlooked or not critically examined. Musk has supported China’s Belt and Road Initiative by leveraging on the smelters supported by Chinese state-owned firms.  

Musk’s relationship with China is not new. Tesla entered the Chinese market by adhering to stipulations on local procurement and setting up contracts with local manufacturers in China to essentially create the ecosystem for EV manufacturing in the country. Thanks to his myopic business decisions, he created his own competition in the country and maybe even the world. While he has ridiculed competition from Chinese peers such as BYD (supported by Warren Buffett), the Chinese EV company has made inroads into several global markets.  

For short-term considerations of shareholder value, American corporations dance to the tunes of the leadership in China and often end up underwriting their own peer competition indirectly. Before China weaponizes its market more and leverages its relationship with American corporations, the Biden administration, along with its supply chain review measures, has to review corporations across the board that could potentially have exposure to Chinese state-owned firms.  

Sen. Marco Rubio (R-Fla.), the top Republican on the Senate Intelligence Committee, introduced the Space Protection of American Command and Enterprise (SPACE) Act in late 2021 to address the threat of China gaining access to space technology secrets via third parties. The bill bars NASA and other U.S. government agencies from awarding contracts to companies with suppliers who have ties to China, and would require more disclosure of Chinese investments in U.S. companies involved in the private space-launch industry.

The U.S. needs a potent measure to curb supply chain vulnerabilities in sectors such as clean energy and semiconductors, similar to Rubio’s bill that is tailored to address the threat of China gaining access to space technology secrets via third parties such as Starlink.

Biden should bring about such a measure, however, more expansive and comprehensive that covers not just the space industry but also renewable energy, EVs and other related industries, since companies such CATL could become recipients of the benefits offered under the Inflation Reduction Act.

Biden’s targeted action to revive American competitiveness may become a fool’s errand if billionaires such as Musk support China due to myopic considerations of market access and the steady supply of raw materials, and billionaires such as Warren Buffett invest in its peer competition.  

Several of Musk’s companies were recipients of government support. The Air Force and the Pentagon’s Defense Advanced Research Projects Agency (DARPA) supported SpaceX in its early days. Government contracts and support have enabled SpaceX to outcompete other private satellite firms. Every American taxpayer should be asking why we are underwriting China’s ascent to the global pecking order. 

If Musk chooses to bend the knee to the Chinese Communist Party, it is his prerogative. Americans don’t have to, and hopefully will not anytime in the future.

Akhil Ramesh is a fellow with the Pacific Forum. He has worked with governments, risk consulting firms and think tanks in the United States and India. Follow him on Twitter: Akhil_oldsoul.