Automaking was once the crown jewel of the US economy. While East Asian companies started manufacturing cheaper products in the 1980s, a long history of Western dominance, technological edge, and protectionist policies limited Asian automaking expansion. China had failed to capture its domestic market, let alone anything international. Thus, having little to lose, it pursued a so-called “leapfrog” strategy, where Chinese firms, instead of fighting existing behemoths in what could be a declining industry, decided to spend fortunes on research to create more sophisticated electric vehicles (EVs). China’s decision seems to be paying off in spades, as the country’s EV companies are poised to be everyone’s stiffest industry competitors. This emergence comes at a time when EVs are emerging as the top candidate to become the primary vehicle market. In 2023, EU lawmakers announced a plan to outlaw the sale of traditional internal combustion engine (ICE) cars by 2035, with some member states like Norway committing to even faster timelines. This means that EVs will become the dominant force in the automobile market, with growth projected at nearly 18 percent annually until 2030.
The changing ICE industry landscape will not only affect what types of cars are produced but also where they are coming from: Western dominance of the car market is on its way out. While many people have started associating the EV industry with Tesla, an EV blitz out of China led by automaker BYD may soon put Tesla on the back foot. Elon Musk has even said that, without trade barriers, “[The Chinese] will pretty much demolish most other car companies in the world. They’re extremely good.” Indeed, BYD surpassed Tesla sales in the fourth quarter of 2023. If the United States wants to regain its footing in the competition, it must take creative, proactive measures.
In response to the increasing trade imbalance, the Biden administration is considering raising tariffs on Chinese-made EVs. While Musk and other automakers may be begging for these trade barriers, tariffs would simply make Chinese EVs more expensive. US policymakers might be able to whittle down the 20 to 30 percent price advantage, but such efforts fall short of a long-term solution to Chinese preeminence. BYD is already planning to circumvent the anti-China trade policy by increasing overseas production in Mexico. Applying steep tariffs could trigger harsh economic and political retaliation from Beijing in the form of counter-tariffs, bans, and regulatory pressure affecting the entire US economy. If experience dictates anything, the trade war that ensues could lead to a net negative outcome for the United States, including considerably reduced future access to one of the biggest markets in the world—damning for American producers and consumers alike. If the United States simply blocks Chinese EVs without a suitable and accessible domestic alternative, American hopes for an EV-green transition could easily fall to ruin.
While BYD faces headwinds in the US market for economic and political reasons, the company has expanded rapidly throughout Southeast Asia and Latin America; Biden might win the domestic battle, but he is losing the war for global automobile hegemony. China already dominates nearly 75 percent of Thailand’s EV market, the second largest in South Asia. BYD has also invested in EV manufacturing and infrastructure in Brazil, one of the largest markets in South America. Europe is well within Chinese automakers’ sights, meaning it is likely a matter of time before the United States sees cheap Chinese EVs shipped into its borders.
China’s clear dominance in the extraction and processing of rare earth metals, which are necessary for crucial EV components, means its companies are not limited by the same material constraints as American producers, which import most supplies. Most Western car companies face major shortages, prompting Tesla’s costly plan to innovate its way out of using all rare earth metals. China’s supply chain resiliency also benefits from lithium-ion batteries, the core of an EV: These batteries, manufactured primarily within China’s borders, are heavily dependent on Chinese-controlled markets and technology.
Direct political support from the Chinese Communist Party prevents the tailwind behind EVs from sputtering. Beijing has implemented preferred selection for highly coveted license plates for EV owners, mandatory EV quotas/credits, and direct industrial policies like subsidies and tax breaks. China has also set anti-ICE goals, committing to no sales after 2035. Using consumer and corporate incentives, the Chinese leadership has irreversibly increased its foothold in the EV market.
While the United States can’t be China, China’s success in EVs can give Washington insights into how to adapt to a changing market. To effectively counter a Chinese EV flood, the United States needs competitive alternatives. While the overall situation is pressing, it also presents a unique opportunity to rally American political forces: Climate-conscious individuals—together with China hawks and Midwestern industrialists—should advocate a combination of industrial policy, social incentives, and protectionism. This would simultaneously push back against growing trade deficits and bolster support for green legislation. Biden’s Inflation Reduction Act supports this approach, with its considerable incentives for onshoring and maintenance of high duties on Chinese cars.
Yet, the ultimate problem with EVs is that, for ordinary US consumers, they are simply inconvenient. The lack of fast and accessible charging seems to be a considerable hurdle when the payoff is decreasing one’s perceptually nebulous “carbon footprint.” The solution once again lies within the Chinese playbook. In addition to having the robust charging infrastructure that the United States lacks, China’s social incentives, like the distribution of driver’s licenses, make EVs a more convenient and attractive option than a traditional car. For the US government, in addition to economic incentives making EVs more affordable and an industrial policy driving Western innovation, a similar “soft factor” policy is necessary to dislodge the powerful inertia of ICE’s presence within American society. A combination of small things like preferential parking, toll exemptions, EV-only lanes, or other benefits that encourage the use of electric cars could go a long way in converting new buyers toward EVs.
A green and economically independent future necessitates that EVs be integrated into the national infrastructure. Out of concern for geopolitical and climate interests, it is necessary to cultivate demand for EVs by swiftly transitioning American ICE production to EV manufacturing. Instead of provoking a direct confrontation with China, US lawmakers should cultivate a homegrown approach to contain and diminish China’s growing influence on the global auto market.