Anti-China protectionism backfiring on American carmakers’ EV plans: analyst

While Washington’s efforts to block Chinese electric vehicles (EVs) were originally intended to protect its domestic automotive industry, they have sparked concerns the strategy is hurting America’s carmaking competitiveness.

With a lack of a coherent industrial policy discouraging long-term investment, the protectionist approach was backfiring on Detroit’s EV transition, said David Zhang, a macroeconomics and policy analyst at Trivium China, who added that EVs could be a “perfect concession” in US-China trade talks, and that China had “ample reason” to push for market access.

Chinese EV makers face tariffs of more than 100 per cent in the United States, while Washington has also imposed restrictions on China-linked software and hardware to address data security concerns.

US lawmakers have also introduced bipartisan bills seeking to further restrict American sales of EVs linked to China.

While the protectionist measures were intended to give US legacy carmakers time to adjust to challenges from Chinese EV competition, Zhang said such a strategy could only work alongside long-term industrial planning and execution.

“There’s actually growing concern that the US has not only fallen behind in the [EV] race but has failed to come up with a coherent long-term EV strategy and stick to it,” said Zhang, who is based in Washington.

During his second term as US president, Donald Trump has been retreating from government EV incentives, including rescinding incentives for EV production and watering down fuel economy standards.

“We’ve seen quite dramatic reversals when the political leadership changed,” Zhang said. “That makes it very difficult for not only Chinese but also US carmakers to plan investments that might take five or 10 years to pay off.”

He added that policy inconsistency was prompting US carmakers to scale back EV expansion plans, including cutting production targets and delaying or cancelling the introduction of new EV platforms.

Such uncertainty has also discouraged some Chinese carmakers from entering the US market. At this month’s Milken Institute Asia Summit in Singapore, BYD vice-president Stella Li said the company was not planning to sell passenger cars in the US due to the market’s lack of “clarity, visibility and stability”, Reuters reported.

Despite the restrictions, Zhang said the US market remained attractive because it was “significantly underserved” when it came to affordable EVs – an area where Chinese companies could leverage their advantages in battery technology and low-cost manufacturing. That made EVs a potential bargaining chip in future US-China trade negotiations.

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“On paper, the market is actually a perfect concession for US-China trade talks,” Zhang said. “The US market has long been seen as a sort of holy grail in terms of global-scale high margin sales.

“And there’s tremendous interest [from Chinese carmakers] … as they’re trying to escape the price wars at home and chasing higher profit margins elsewhere.”

Signs of potential flexibility have emerged, with Trump indicating early last month that he would allow Chinese car manufacturers to produce cars in the US if they built factories that would create jobs.

Those remarks sparked a backlash from the American automotive industry, with a letter from six major automotive trade groups urging Trump to “maintain policies that keep the door firmly shut to Chinese automakers”.

However, some US carmakers are pursuing selective cooperation with Chinese companies, attracted by their technological advantages and cost competitiveness in key areas such as batteries and EV supply chains.

Ford Motor, for example, is working with Chinese battery giant Contemporary Amperex Technology Limited (CATL) on a battery factory in Michigan, with CATL serving as technology and service provider for the project. The Chinese company said in May that US carmakers needed “the best lithium iron phosphate technology to compete globally”.

“The US is not likely to dismantle its restrictions wholesale any time soon,” Zhang said, citing the broad bipartisan support for restricting Chinese carmakers’ access to the US market.

“But there may be more room for selective firm-level cooperation on technology and manufacturing in places where American companies themselves see a commercial benefit to cooperation.”