A German Rust Belt? As Chinese EVs like BYD swarm Europe’s key markets, historic examples of deindustrialization pose a warning to the continent’s carmakers

European automakers are still digesting the shock from the sudden onslaught of cheap Chinese carmakers like BYD onto their shores months after the first purpose-built ships started ominously carrying them to the continent.

But as more data about China’s encroachment on the European market comes to light, any denial of the country’s threat must quickly turn to acceptance to head off the worst outcome.

Whether they’re concerned about Chinese EVs wreaking havoc on their export market, or more disastrously wiping production from their home countries, European automakers could do with taking a history lesson to understand the worst-case scenarios of China’s latest onslaught.

Chinese EVs incoming

European brands have been slowly giving up ground to Chinese imports for the last few years.

Data from the European Automobile Manufacturers Association (ACEA) shows European automakers’ market share in the EU fell from 74.2% to 70.6% between 2019 and 2022. China’s share, meanwhile, rose from 0% to 1.3%.

But that hides a much more dramatic shift that is now occurring in Europe.

Chinese manufacturers, in particular BYD, have shocked legacy carmakers in the last 12 months with their ultra-cheap offerings and aggressive plans to expand in Europe.

The results so far speak for themselves.

Research from campaign group Transport & Environment found that a quarter of EVs sold in Europe this year could be made in the EU, up from 19.5% last year.

It’s a dramatic shift in import-export dynamics across the continent, particularly for Germany’s industrial powerhouse.

It’s also a shift that might remind history buffs of the U.S. Rust Belt.

German Rust Belt?

The Rust Belt signifies the deindustrialization of major U.S. steel hubs in Northwestern and Mideastern States as manufacturing moved abroad.

Manufacturing employment fell by 35% in the space of 10 years at the start of this century, having already experienced a significant decline between the 1970s and 2000.

The fallout from the sudden loss of industry has had decades-long ramifications, namely through economic decline, emigration, and urban decay.

Commentators have often referenced the Rust Belt to help explain a rising wave of populism that elevated Donald Trump to the White House.

Some 11% of German employees worked in the country’s automotive sector in 2021, according to the ACEA, the sixth highest share in the EU.

In addition to losing customers in its own continent, Germany is likely to lose out in its other export markets to BYD cars, accelerating its movement towards a more import-intensive trading dynamic.

Nigel Griffiths, director of auto vehicle forecasting at S&P Global Mobility, doesn’t think the European EV market will deteriorate to the extent that it would create a new Rust Belt on the scale of the U.S. But things will change for the worse.

“We believe things are in motion for there to be this trend change, Europe will come from decades and decades of being a net exporter of vehicles, to being a net importer,” Griffiths told Fortune.

The outlook for European automotive employment had been turning gloomy for several years prior to COVID-19, accelerated by a shift to EVs which has lessened the number of parts required to build a car, Griffiths points out.

The semiconductor shortage crisis also forced automakers to prioritize the types of models they were producing, which gave Chinese automakers an opening in that market.

“All of those suggest far fewer jobs in the sector. So you've got that happening at the same time now as this trade effect, which is also going to be negative to long-term employment in the sector,” Griffiths said.

Nishita Aggarwal, an automotive industry analyst at the Economist Intelligence Unit (EIU), is more optimistic about Europe’s ability to fend off the threat from China and protect jobs in the region.

The EU’s investigation into allegedly anti-competitive subsidies provided to Chinese automakers from their government may result in extra tariffs being placed on Chinese imports.

Other measures to protect native automakers will likely be introduced, Aggarwal says.

“However, given China’s dominance over EV and battery production and sales, there will be some short-term disruptions as European companies scramble to develop or source alternative supplies,” Aggarwal says.

That battery dominance is no small obstacle, as JATO Dynamics global analyst Felipe Munoz explains.

“China is the only country in the world with an electrification policy that not only spans public incentives and infrastructure but includes total control over the raw materials required for battery production,” Munoz says.

“The US and Europe do not currently have this advantage. If this does not change, and its industries remain dependent on components from China, then the influence of Europe’s automakers will decline not only in Europe but globally.”

Japanese lessons

A more pertinent comparison than the Rust Belt might come from looking east and 40 years into the past.

Europe’s battle with Chinese automakers, particularly for their respective export markets, has comparisons with a tussle that occurred between Japanese incumbent carmakers and disruptors from South Korea, according to S&P’s Griffiths.

South Korean carmakers copied the Japanese playbook for exporting to Western markets, with Hyundai, Daewoo, and Kia striking deals with U.S. parts makers and shipping hundreds of thousands of models to the States.

It didn’t take too long for American buyers to get over brand loyalty built up by Japanese carmakers like Toyota over decades, as college students and other bargain hunters swarmed to cheap South Korean products, the LA Times reported back in 1987.

South Korea’s encroachment on Japan’s export market occurred over a 10-year period, Griffiths says. But European automakers can’t expect to have the same amount of preparation time.

“In China, they’re probably looking at how the Koreans came in and will probably try to do the same thing, but at a speed two to three times faster than that, Griffiths said.

“They won't wait more than a decade.”

This story was originally featured on Fortune.com