Editorial: Volvo's strategy for its Chinese-built vehicles thwarts U.S. protectionism

Credit where credit is due: Volvo Cars' quiet strategy that foils protectionist U.S. tariffs imposed on vehicles built in China in part by using one of this nation's oldest laws, the Tariff Act of 1789, is ingenious.

But it remains to be seen how Congress and its monied friends in the incumbent U.S. auto industry will react to having their political will stymied by a Swedish brand owned by a Chinese parent company with a small U.S. footprint.

Volvo plans to use duty drawback — a provision originally from George Washington's first term and modernized in 2016 — which allows the refunding of tariffs, duties and certain fees on imported merchandise. Under the law's substitution provision, an export to countries not in the United States-Mexico-Canada Agreement can be matched to an import with the same tariff classification number. And because the drawback program is retroactive, automakers can recoup duties paid on already imported vehicles.

Volvo Cars and EV startup Polestar plan to use this provision to recoup the duties and 25 percent tariff on the Chinese-built Volvo EX30 crossover and Polestar 2 sedan using its exports of the U.S.-built EX90 and Polestar 3 crossovers. The trade compliance strategy is designed to give the Geely-affiliated automakers a price advantage in the U.S. on its vehicles assembled in China while encouraging further global exports of its U.S.-made electric vehicles.

Volvo's strategy is not novel. General Motors uses duty drawback to subsidize the importation from China of its Buick Envision crossover, and a wide swath of the industry employs it to cost-effectively import auto parts built in China. Ford Motor Co. may do the same next year when it begins importing the redesigned Lincoln Nautilus from China.

Automakers, dealers, suppliers and organized labor all tend to view importation of vehicles from China — the world's largest car market — as an existential threat. China does have competitive advantages in some areas of light-vehicle production, but in other areas, it lags significantly behind established Western brands.

Given its rapid progress, China may catch up, just as the Japanese auto industry did 50 years ago, forcing much-needed change at U.S. automakers.

That is what competition does, and why protectionism is never a winning strategy.