A new report ties auto manufacturing to Xinjiang’s genocide. Will consumers—and Western countries—care?
By Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics.
December 21, 2022
The grave human rights conditions in China’s Xinjiang Uyghur Autonomous Region, where Uyghur Muslims and other religious and ethnic minorities are subjected to internment and forced labor, among other abuses, demand international response. So far, the centerpiece of the U.S. response has been the Uyghur Forced Labor Prevention Act (UFLPA), signed into law by President Joe Biden in December 2021. The law is intended to prevent U.S. consumers from being complicit in these abuses through the purchase of Chinese goods made with forced labor. In doing so, it encourages global firms to take Xinjiang out of their supply chains in order to maintain access to U.S. markets.
At the time, it was believed that the forced labor problems were concentrated in a few key industries: cotton, polysilicon that underpins solar arrays, and tomatoes. Issued by U.S. Customs and Border Protection (CBP), the agency’s Operational Guidance for Importers—the quick start guide, if you will, for complying with the UFLPA—mentions only those three products by name.
But a recent report by U.K.-based researchers finds that the problems extend deep into the supply chains of virtually every major automobile manufacturer. To the extent the findings are credible, they massively complicate both practical and political challenges to proper enforcement. More fundamentally, they provide a test of just how willing the United States and other entities—including the European Union—are willing to go to respond to what the United States has called a genocide.
The report, published by researchers affiliated with the Helena Kennedy Centre for International Justice at Sheffield Hallam University, traces the contributions of Chinese companies implicated in forced labor—or firms sourcing from companies that have been so implicated—to automotive supply chains via basic inputs such as steel and aluminum but also electric vehicle (EV) batteries, vehicle electronic systems, tires, and spare/replacement parts. As the world’s leading lithium processor, China dominates production of the upstream materials used by the world’s main EV battery-makers.
The alleged connections are deep and pervasive. The report identifies 96 different companies operating in Xinjiang that feed into automotive supply chains at various stages from mining to auto glass and electronic systems, with 38 participating in state-sponsored labor transfer programs, by which workers from Xinjiang are relocated outside the region (more on that later). The list of implicated auto manufacturers is a who’s who, including all the major players (Toyota, Volkswagen, Mercedes-Benz, and U.S. auto giants General Motors and Ford) and more boutique (Aston Martin, Ferrari) and EV-centric (Tesla, Rivian) producers. Although the UFLPA mostly applies to goods made in Xinjiang, it also covers goods produced outside the region by certain business entities that the United States has found to be complicit in abuses.
In highlighting these linkages, the report raises the economic stakes of the UFLPA dramatically. Xinjiang is pivotal in global cotton, polysilicon, and tomato production. But in terms of global trade, those markets are small potatoes—er, tomatoes—compared with the auto industry. Total global trade in cotton, all photovoltaics, and tomatoes was on the order of $80 billion in 2020; trade in motor vehicles alone amounted to $645 billion, with billions more in auto parts.
And this increased scrutiny on the automotive sector is coming at a time when there is still considerable pent-up demand for new vehicles due to pandemic-related supply chain disruptions and resulting sky-high prices.
The UFLPA was the most overwhelmingly bipartisan piece of U.S. legislation in recent memory, having passed the Senate unanimously and the House with only one dissenting vote (Republican Rep. Thomas Massie of Kentucky). And it’s easy to understand why. It achieved a rare trifecta: being on the right side of moral issues (forced labor and religious persecution) while simultaneously protecting U.S. economic interests in import-competing sectors (agriculture and solar, especially as U.S. solar production ramps up in response to the renewable energy incentives included in the Inflation Reduction Act, or IRA) and matching pitch with increasingly intense anti-China sentiment in U.S. foreign policy. But implementing it—especially in light of alleged problems in the auto industry—faces significant challenges.
The first relates to the nature of proving a negative. The law establishes a “rebuttable presumption” that goods produced wholly or in part in Xinjiang are prohibited entry into the United States. That is, evidence must be provided to demonstrate forced labor was not used. As any veteran of a college philosophy course can tell you, proving a negative is extraordinarily difficult.
Also, the forced labor problem is not confined to Xinjiang. Via labor transfers, workers from Xinjiang have been relocated en masse to other regions of the country, with suppliers to U.S.-based multinationals such as Apple having been implicated. The most common approaches to addressing supply chain-related concerns are third-party monitoring and audits like that used by Apple in sourcing minerals from the Democratic Republic of the Congo. But these measures cannot be credibly conducted in Xinjiang’s police-state environment, which renders virtually impossible the task for media and civil society actors attempting to verify conditions on the ground.
Given these challenges, proving conclusively that forced labor has not tainted a supply chain is an arduous task when applied to basic products such as cotton and tomatoes. Automobile supply chains are much more complex: A single vehicle can be composed of parts and materials sourced from dozens if not hundreds of suppliers and subsidiaries, a point the report makes clear.
The second relates to U.S. enforcement capacity. From June through early December, CBP held up roughly 2,200 goods shipments valued at $728 million on suspicion of links to forced labor; of those, 300 were ultimately allowed to enter. But U.S. imports from China in 2022 are expected to near half a trillion dollars. Even if enforcing the UFLPA were CBP’s only task—and it is not—true supply chain monitoring for the hundreds if not thousands of products imported from Xinjiang would be incredibly difficult, to say nothing of the wider problem implied by cross-regional labor transfers.
Fundamentally, the biggest challenge is one of political will. In spite of high enforcement costs, as they say, where there’s a will, there’s a way. And when the problem was thought to be confined to cotton, polysilicon, and tomatoes, will was in ample supply. U.S. cotton producers were full-throated in their opposition to Chinese forced labor and emphasis on supply chain monitoring in the run-up to the UFLPA’s passage. In addition to being the right thing to do, the UFLPA has encouraged textile companies and clothing manufacturers to look elsewhere—including to the United States—to source cotton.
For an industry buffeted by high temperatures in Texas, the buckle of the cotton belt, relief from competing Chinese imports is welcome. And additional costs to consumers due to Chinese supply disruptions have been relatively negligible: The U.S. consumer price index for apparel has barely budged since the UFLPA went into effect over the summer. Even prior to the ban, the United States was not importing Chinese tomatoes in large volumes, so there was no real domestic constituency standing against import restrictions.
The effects for U.S. solar have been more negative, as the industry is heavily dependent on China at virtually every step in the supply chain from mined silica to solar arrays. But the blow has been softened somewhat by the subsidies, tax credits, and loans created by the IRA, which seeks to ramp up U.S. solar capacity throughout the supply chain. The UFLPA has harmed U.S. solar in the short term, but medium- and longer-term outlooks are bullish. What the UFLPA taketh, the IRA giveth.
In stark contrast, the effects for the auto industry would be massive, hitting both consumers and producers. If enforcement begins targeting auto imports, the cost of one of the most expensive purchases most U.S. consumers ever make will likely rise further at a time when prices—even if softening of late—are still extremely high for both new and used vehicles.
For U.S. automakers, the report’s implications are superficially positive—seemingly encouraging consumers to “Buy American”—but actually harrowing. As recently as 2020, the U.S. auto industry was the most reliant on Chinese parts and accessories of major producing countries, with Chinese content in U.S.-built vehicles growing steadily in the last 15 years. Unfortunately, that dependence is most acute in areas that are vital to achieving the emissions cuts necessary to mitigate climate change, such as EV battery production. Assuaging concerns about forced labor would require U.S. and foreign automakers to establish the legality and legitimacy of their supply chains in perhaps the most challenging environment on Earth.
The situation in Xinjiang is appalling, and the U.S. government is right to do what it can to keep U.S. consumers from aiding and abetting abuses there and throughout China. Up until now, doing the right thing was costly but also consistent with broader U.S. economic and security goals: kick-starting U.S. solar production and protecting a beleaguered cotton industry.
The inconvenient truth, however, appears to be that Xinjiang is more deeply enmeshed in global supply chains than was realized when the current enforcement regime was established. And that will affect the UFLPA’s enforceability, both practically and politically. If the United States is serious about enforcing the ULFPA, it will need to ramp up CBP resources dedicated to the task. If it is not, it will clarify the costs the United States is willing to bear to end—or at least not be complicit in—human rights abuses in Xinjiang.
Source: foreignpolicy.com