China’s move to dominate the world electric vehicle (EV) market poses major challenges to the world trading system and, the US argues, to national security. While the policy responses are still unfolding, two models are emerging: a European response of economic retaliation mixed with offset accommodation and a US hardline reaction underpinned by both economic and security considerations. The US views the EV challenge in the broader context of a great power contest for global political and strategic leadership.
China’s Emerging EV Dominance. Coming off more than a decade of statistics-led industrial planning, coupled with huge subsidies, forced technology trains, and a closed import market, China has emerged as the clear leader in electric vehicle production and sales. Fierce domestic competition among Chinese and foreign auto firms has also produced enormous overcapacity—production capacity in 2025 (gas, hybrids and EVs) is expected to reach 36 million vehicles, but domestic demand will reach only 17 million, leaving a surplus of some 20 million vehicles aimed at international markets.
US Response. It is telling that President Joe Biden’s first move against Chinese EV imports cited security rather than trade considerations. He directed the Commerce Department to investigate the security implications of Chinese EV electronic systems as a potential means of collecting information on US citizens and government organizations. Though the proximate rationale focused on internal surveillance systems, the administration also cited the larger security perils of a China-dominated world EV market that overwhelmed the US auto industry. Lael Brainard, head of the White House National Economic Council, recently stated that a “strong and vibrant U.S. auto industry” is vital for “our economic security and our national security.” In sum, the US thus wants neither Chinese EV imports nor investment.
Europe’s Emerging Response. Some months ago, the European Commission launched an anti-subsidy investigation into the Chinese EV industry. The investigation resulted in the EU recently placing provisional duties of between 17 and 38 percent on EV import, on top of an existing 10 percent duty. The Commission has made it clear, however, that further negotiations with Chinese companies and the Chinese government are expected. Partly, this reflects deep divisions among EU member states over Europe’s response to the Chinese EV surge, with German companies (Volkswagen and BMW) who have large investments and sales in China resisting a showdown. Beyond these practical considerations, many European leaders feel that China has too strong a lead on EVs to challenge directly and that an investment in European companies might boost EU competitiveness. As one commentator put it, “if you can’t beat them, join them.” The historic model is a repeat of the US experience in the 1980s, where trade conflicts with Japan and South Korea were eased through substantial investment in the US by Japanese and Korean automakers. Recently, Chinese automakers have agreed to enter into joint ventures with European companies inducing tech transfer and upgrading.
There are potential future problems with both the US and the EU models.
Chinese EV companies are now launched on a substantial foreign investment strategy, with EV supply facilities around the world including Asia, Africa, South America. In coming years, the US could face strong pushback if it blocks Chinese EVs manufactured or assembled in, say, Brazil, South Africa, or Malaysia. The clash will occur when attempts are made to import these cars, partly manufactured by Chinese companies, into the US. For the Europeans, the benign history of Japan, Korea, and the US in the 1980s may not repeat itself: It could well see Chinese companies, heavily subsidized and technologically advanced, overwhelming European carmakers with the history of its largely debunked solar manufacturing industry as the early future model.
Time will tell.
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