Here's why the United States depends on China for emergency medical supplies

As imports from Chinese manufacturers vaporized and other countries clamped down on exports, health care workers improvised with homemade face masks while American factories retooled in a desperate race to make ventilators and protective equipment. It’s a pattern, it seemed, in which devices invented in the U.S. end up being produced overseas.

“Never again should we rely on the rest of the world for our essential medicines and countermeasures,” vowed President Donald Trump’s trade adviser, Peter Navarro, during a Coronavirus Task Force press briefing at the White House. Democratic New York Gov. Andrew Cuomo voiced similar frustration: “Long term, we have to figure out why we wound up in this situation where we don’t have the manufacturing capacity in this country.”

I started reporting on the crisis in American manufacturing long before the coronavirus forced the issue onto center stage.

I wanted to understand what happened to America’s efforts to manufacture the lithium ion battery, a product that has become vital to the future of U.S. transportation. Lithium batteries now power not just a new generation of electric cars, but everything from cordless drills to personal drones. Utilities use them to store energy generated by windmills and solar panels. They even push air through the protective suits ordered recently by the Federal Emergency Management Agency to help New York hospital workers responding to COVID-19.

But the effort to establish a lithium battery manufacturing base in the U.S. largely failed, even after the Obama administration made it a keystone of its 2009 stimulus program, aiming to produce 40% of the world’s lithium ion batteries for advanced vehicles by 2015.

Today, that number stands at about 10%, largely because of Tesla’s battery plant in Nevada. Most of the batteries used in a plethora of U.S. products are shipped in from China or other foreign suppliers. Despite its economic nationalist rhetoric, the Trump administration has done little to revive battery-making, proposing deep cuts to alternative energy research and favoring fossil fuels at every turn. (A spokeswoman for the Department of Energy declined to comment on the record.)

A shuttered battery plant in Romulus, Michigan, about 10 minutes from Detroit’s airport, is a monument to that fizzled dream. Just down a two-lane road from a General Motors plant that makes gas-powered engines, A123 Systems’ factory had opened a decade ago, with generous funding from Obama’s stimulus program.

Then, as now, the federal government was pumping money into the economy to stave off total collapse. Unlike today, however, the goal was to create as many jobs as possible rather than support people whose jobs had to disappear in order to contain a deadly virus. And the Obama administration wanted to do something else, too: Retool major industries to help them survive and thrive in the future.

A123’s Romulus plant now sits quiet. Its giant floor has been for lease for more than a year, while expensive machines wait to be sold at auction, likely for pennies on the dollar. A sister plant and the company’s former headquarters, in nearby Livonia, is being repurposed as medical office space. A123, which did not respond to requests for comment, has only white-collar workers left in America; all its manufacturing is done in China and the Czech Republic.

That failure to build a robust industry that’s critical for the country holds many lessons for leaders during the current predicament.

“The government invests in basic research and leaves everything else to chance,” said Sridhar Kota, an engineering professor at the University of Michigan who served as assistant director for advanced manufacturing at the Office of Science and Technology Policy during the Obama administration. “The free market has spoken for 30 years. It’s not working for us, because we are not leveraging our own investments, and lithium ion batteries are just one painful example of that.”

At a Democratic Party presidential debate in February, candidate Joe Biden sounded like he did back in 2009 and 2010, traveling the country as Barack Obama’s vice president to tout stimulus spending. Asked how the country should address climate change, he ticked down a list that included a familiar prescription.

“Invest in battery technology,” Biden said.

As if his White House hadn’t tried to do exactly that.

Biden was an early cheerleader for the Obama administration’s investment in battery research and production. Electric cars were catching on, but their batteries were produced almost exclusively in Asia, which had originally commercialized them for use in camcorders and cellphones before moving on to cars. To fix that, the Obama administration parceled out $2.4 billion to manufacturers willing to make batteries in the U.S. and put people back to work in the process.

A123 Systems, a startup that had spun out of MIT with promising new lithium ion technology in 2005, was granted $249 million, the battery stimulus’ second-largest recipient. It announced new factories in Romulus and Livonia that would ultimately create more than 4,000 jobs. Michigan offered $135 million in grants and tax credits and named A123’s planned 75-acre campus a “Renaissance Zone,” erasing state and local taxes for 15 years.

In 2010, at a splashy ribbon-cutting event to showcase the Livonia plant, Obama called in and was piped through loudspeaker, proclaiming that America’s economic policies would no longer “put us behind the innovation race.”

Attending that ribbon-cutting in person was Perry Seay, hired by A123 about a year after he was laid off from a dental supply company. He took a contract position managing inventory and was excited about joining a startup offering a bright future.

“The government wanted this to happen,” Seay said, “and they threw all this money at it. We all had high hopes.”

When both of its factories were built, A123 had the capacity to be America’s biggest lithium ion battery producer. Its signature client was the startup Fisker Automotive, which made the sleek, battery-powered Karma sports car.

Making lithium ion batteries is not unlike baking cinnamon rolls. At A123’s Romulus plant, where workers donned hazmat suits for protection, batches of graphite and lithium were mixed into a “slurry” that was stored in giant holding tanks. Each mixture was rolled out onto copper or aluminum foil, baked in a special oven and pressed to a precise thickness.

The coils were then transported to Livonia, where they were unwound, cut into smaller rolls and re-wound before going into a vacuum oven. Workers fashioned them into circular “jelly rolls,” inserted them into metal housings, drizzled them with electrolyte icing and squeezed to help carry lithium ions between the cathode and the anode, which is what releases energy. They were packed into slender cylinders or slim, flat packets. For car batteries, those packets were stacked like pancakes and bolted into metal boxes.

It didn’t take long for things to go wrong.

In 2011, defective A123 batteries sold to Fisker led to a $66.8 million recall that tanked the company’s stock price. Seay, who by that time had been hired on full time, said A123’s batteries suffered from inconsistent quality. “It appeared to me like a rush to get things done so we could make use of this money and start selling the Fisker car,” he said.

A123 also struggled to build a customer base. General Motors, still recovering from its own financial crisis, chose South Korea’s LG Chem over A123 to make batteries for the Chevy Volt. “I was unwilling to take a risk on a startup battery company,” said Tony Posawatz, who ran GM’s Volt program at the time.

A123 wasn’t the only battery-maker slowly wilting. Johnson Controls, a leading manufacturer of lead acid batteries, scrapped plans for a new plant that would focus on lithium ion batteries. After disappointing GM Volt sales, a federal audit found that LG Chem had spent nearly all of its stimulus grant but constructed only 60% of the promised capacity. EnerDel went bankrupt in 2012 and was purchased by a Russian investor. Dow to sold a German firm its interest in a plant it built in Midland, Michigan.

When A123 filed for Chapter 11 bankruptcy in October 2012, it had used $132 million of its $249 million federal grant, and its Michigan hiring peaked at 1,000 employees.

Deepening the wounds, a Chinese industrial conglomerate called Wanxiang paid only $256.6 million for A123’s assets in 2013. There was bipartisan outrage in Congress about the deal, but not enough to stop the sale. Wanxiang later bought Fisker too.

For automakers, battery technology still could not compete with gasoline engines. Nancy Gioia, who ran Ford Motor Company’s electrification initiatives, couldn’t use batteries for trucks and SUVs demanded by American drivers. “Battery-powered vehicles, at that time, that was a bridge too far,” Gioia said.

By 2015, instead of the million electric vehicles projected by the White House, with sales further depressed by low gas prices, only about 400,000 were on American roads.

The federal money had been irresistible, but it also led A123 to invest in manufacturing before enough customers existed for the product, said co-founder and former chief technology officer Bart Riley. “If you’re responding to something that’s artificial in the market, you do so at your peril,” Riley said.

Last October, British data analyst Simon Moores came to the Old Executive Office Building beside the White House to brief some of Trump’s staff on the lithium ion battery supply chain.

“The White House thinks of this in terms of jobs,” said Moores, a managing director of the research firm Benchmark Mineral Intelligence. If developed, the full supply chain of battery manufacturing could create around 45,000 jobs, he said. The bigger stakes were what America stood to forfeit.

“If the U.S. doesn’t get its own battery capacity, large scale and high quality, it’s going to lose its automotive industry in the next 50 years,” Moores said.

To be competitive, innovation and manufacturing must exist in a virtuous circle — with engineering improvements closely tied to factory production. For the moment, consumers still demand trucks and SUVs because gas is cheap and battery-powered vehicles come at a premium. But as the cost of batteries declines, that could shift quickly, before Detroit is ready for it.

So far, the trajectory isn’t good. By 2024, Benchmark expects America to have 8.2% of the world’s lithium ion battery-making capacity, while China has 72.8% and Europe has 14.2%.

Trump’s administration has urged companies to move their supply chains out of China. Trade adviser Navarro, a longtime critic of trade with China, has explicitly cited America’s lack of battery manufacturing as a national security threat because of the substantial military applications — ranging from portable radios to thermal imaging for surveillance. China also controls the raw materials used in advanced batteries. Lithium, the world’s lightest metal, is primarily mined in Chile and Australia and processed in China.

“We have virtually all of the battery production migrating elsewhere now,” Navarro said in a 2018 speech at a Washington think tank. “And we have the lithium that’s used for some of this is coming under the control of foreign powers.”

But so far, the administration’s efforts have either been small-scale or even counterproductive.

Take Trump’s trade war, which imposed a 15% tariff on lithium ion batteries coming from China starting in September 2019. (It’s since been cut in half.) Companies and associations — including the Korean company LG Chem and Tesla, the two biggest manufacturers of batteries in the U.S. — pleaded for exemptions with the Office of the U.S. Trade Representative because of the difficulty finding sources.

But the tariffs did not spur domestic production, said Cairn Energy Research Advisors analyst Sam Jaffe. “If you’re going to build a factory here to take advantage of that, how do you know it’s not going to disappear in six months?” Jaffe said. “It’s almost frozen people in their tracks.”

What would spur domestic production? According to experts I interviewed: More battery research investment, and policies that foster demand for electric vehicles, like tax incentives and strong emissions standards. That’s because regardless of tariffs, global supply chains have been contracting for years. Heavy goods especially now tend to be assembled closer to where they’re going to be sold, so if you want something to be made in your country, it makes sense to consume more of it.

Instead, Trump has enthusiastically supported fossil fuels. His Environmental Protection Agency is rolling back Obama-era vehicle fuel economy rules and fighting the extension of a $7,500 electric vehicle tax credit. Trump’s Bureau of Land Management has eased the way for lithium mining on public lands, but investors have been leery.

Any policy proposal involving climate has become politicized. For example: A bill proposed in December by Democratic Rep. Jackie Speier to create new electric vehicle tax incentives, boost charging infrastructure and issue bonds for domestic battery manufacturers has 31 Democratic co-sponsors and no Republicans.

“The administration’s policy is that this is not a problem,” said David Hart, director of the Center for Science, Technology and Innovation Policy at George Mason’s Schar School of Policy and Government.

As his assistant secretary of the Office of Energy Efficiency and Renewable Energy, Trump installed Daniel Simmons, a former staffer at oil- and gas-friendly think tanks.

White House budgets have proposed slashing renewable energy research funding and even sought to eliminate the Advanced Research Projects Agency for Energy, the office heading federal energy storage research initiatives. Congress has so far declined to adopt the cuts, and some battery research continues, although experts say it’s less than needed.

“People were really interested in what we were doing in the U.S.,” Jim Greenberger, executive director of the National Alliance for Advanced Technology Batteries, told me. “Now we’re irrelevant internationally.”

The Trump administration has made a few steps forward. In January, the Energy Department announced an “energy storage grand challenge” that will direct $158 million toward research and manufacturing improvements. And there have been glimmers of new investment in battery production, such as GM’s $2.3 billion partnership with LG Chem to produce batteries at its shuttered plant in Lordstown, Ohio.

But that pales in comparison to Europe and Asia, which are galloping ahead in electric vehicle adoption. Several European nations aim to phase out gas-powered vehicles entirely, for example, and the EU has a bloc-wide “strategic action plan” to ratchet up emissions standards and spend more than $3.5 billion on advanced battery research. China established electric vehicle production targets and requires automakers to buy batteries domestically.

Kota, the former White House advanced manufacturing chief now at the University of Michigan, advocates a new policy that would require spending at least 5% of America’s $150 billion annual science budget on research that turns laboratory breakthroughs into commercially viable products. The government should support startups by buying their products, and companies benefiting from government-subsidized research should be required to manufacture them mostly in the U.S., he said.

But the problem isn’t only with government policy. In contrast to the patient, long-term view of investors in countries like Japan and South Korea, America’s fast-churning capital markets tend to abandon companies that don’t grow quickly enough. To fill that gap, Kota thinks governments should raise money for publicly managed, privately financed venture funds.

“When it comes to scale-up, that shouldn’t be the government’s responsibility,” Kota told me. “Because then you’ll be establishing A123.”

After A123’s bankruptcy, company executives assured the Department of Energy that the new Chinese owners would maintain production in Michigan.

“They are historically a hands-off owner, retain U.S. management, preserve U.S. jobs provided financial targets are met, and on several occasions have exported product from U.S. divisions to their Chinese customers,” senior technical director Mike Wixom wrote, according to documents reviewed by ProPublica.

To Perry Seay, the Chinese company’s U.S. manufacturing operations never made much sense, given how few electric cars Americans were buying. “We were trying to sell to people here in the U.S., but nobody wanted it,” Seay said. And batteries are heavy — it’s hard to compete on cost when you’re shipping overseas.

In 2019, A123 announced it would close its factories and consolidate its engineering personnel in Novi, Michigan. The federal Department of Labor approved a petition for trade adjustment assistance, which is granted when jobs are moved offshore, to dozens of A123’s laid-off workers. A skeletal crew is doing cleanup at the Romulus plant, and when I visited, the parking lot was almost empty, the chargers ripped out of several spaces reserved for electric cars.

The quiet town has likely felt more economic impact from a new Amazon fulfillment center than it ever did from A123. Tim Keyes, the city’s former development director, told me A123 management always kept its distance; he never heard back when he called to check in.

“They were a ghost tenant,” Keyes said, just taking up space that otherwise would’ve been on the town’s tax rolls. “I imagine the city is looking forward to them finally moving out.”