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The United States has significantly escalated its tariff policies on Chinese electric vehicles (EVs), presenting a formidable challenge to Chinese automakers as they seek to expand into Western markets. The tariffs, now set at a staggering 100% on imported Chinese EVs, effectively price these vehicles out of the U.S. market, forcing companies to rethink their global strategies and focus on localization.

The Core of the Trade Tensions

On May 14, 2024, the Biden administration announced a massive increase in tariffs under Section 301 of the Trade Act of 1974. The tariff rate on Chinese-made electric vehicles jumped from an initial 25% to 100%. This move is part of a broader strategy, which also includes increased tariffs on other clean energy products like solar cells (50%) and certain battery components, aiming to protect the burgeoning U.S. green energy industry from what U.S. officials claim is unfair competition driven by Chinese state subsidies.

This measure is not merely a revenue-raising tactic; it is an effective barrier to entry. For a typical Chinese EV priced competitively, a 100% tariff essentially doubles the import cost, making it non-viable for sale in the U.S. market.

Impact on Chinese EV Makers’ Export Strategies

The immediate consequence for major Chinese EV manufacturers like BYD, Nio, and XPeng is a near-total cessation of direct U.S. market entry plans. Instead of viewing the U.S. as a primary export destination, these companies are now aggressively diversifying their global focus.

• Geographic Pivot: European, Southeast Asian, Latin American, and Middle Eastern markets are becoming the new battlegrounds. BYD, for instance, has shifted its focus to the European market, where the current import tariff is 10% (though under review by the European Commission), and to developing nations where the demand for affordable EVs is high and trade barriers are lower.
• Localization as Key: To bypass these tariffs, Chinese firms are increasingly investing in local production facilities. BYD is building factories in Hungary and Brazil, while other companies are exploring partnerships and production bases in Mexico, aiming to potentially utilize North American free trade agreements (though the U.S. is scrutinizing this as well).

Challenges and Opportunities for U.S. Consumers and Industry

While the tariffs protect American automakers, they come with trade-offs. The U.S. market benefits from a secure domestic industry and potentially more American jobs. However, U.S. consumers face fewer choices and higher prices for EVs, as the lack of direct competition from highly affordable Chinese models reduces overall market price pressure.

The move also risks retaliatory measures from China, which could impact U.S. exports and supply chains. The global EV market is deeply interconnected, and these trade tensions add significant friction to international cooperation necessary for addressing climate change goals.

Ultimately, the escalating U.S. tariff policy has created a fractured global market, forcing Chinese EV makers to abandon direct export dreams to the U.S. and compelling them to adopt a rigorous localization strategy to achieve global relevance. The EV race is now as much about trade policy navigation as it is about technological innovation.

The global automotive industry is undergoing a paradigm shift more profound than any in its history. The internal combustion engine (ICE), the bedrock of mobility for over a century, is rapidly being eclipsed by the electric vehicle (EV) powertrain. This transition, driven by environmental mandates, shifting consumer preferences, and technological advancements, presents an existential challenge for legacy automakers in North America and Europe. To survive and compete in this new era, these traditional giants are increasingly adopting a pragmatic, and perhaps strategically necessary, approach: deepening cooperation with the formidable Chinese EV supply chain and technology companies. This strategy is not merely about sourcing components; it is a fundamental recalibration of their global operations, embracing a “China for China” and increasingly “China for the World” dynamic.

The Existential Dilemma of Legacy Automakers

Traditional automakers, such as Volkswagen, General Motors (GM), and Stellantis, face a multifaceted challenge. The transition to EVs is not just a change in fuel source; it necessitates a complete overhaul of manufacturing processes, supply chains, and workforce skills.

Several significant challenges include manufacturing costs, with Chinese manufacturers having a cost advantage; technology gaps, as China leads in battery and software advancements; and declining market share in China due to the growth of domestic companies. Given these challenges, collaboration is often seen as necessary.

Embracing Chinese Expertise

Traditional automakers are partnering with Chinese companies to leverage their EV ecosystem for faster development. This includes securing battery supply and technology from leaders like CATL and BYD, and collaborating on software and intelligent features, such as Volkswagen’s partnership with XPeng for China-specific models and Huawei’s work with Dongfeng. Joint ventures are also shifting, with Western firms acquiring stakes in Chinese EV companies like Stellantis’s investment in Leapmotor and Mercedes-Benz’s investment in a Geely-backed autonomous driving firm.

Analysis of Competition and Cooperation between the US and China Markets Under Global Automotive Industry “Dual Carbon” Goals: Research on New Energy Supply Chains, Technology Standards, and Trade Barriers

Abstract

Driven by global “dual carbon” goals to address climate change, the automotive industry is undergoing unprecedented deep transformation. China and the United States, as the world’s two largest automotive markets, have strategic choices and electrification processes that significantly impact the global landscape. This paper analyzes the competition and cooperation between China and the U.S. in the new energy vehicle sector from a broad international perspective. The study finds that China, leveraging its first-mover advantage and complete industrial chain, dominates in battery technology and the supply chain. In contrast, the U.S., through policies like the Inflation Reduction Act (IRA), is committed to building a localized supply chain and setting up trade barriers. Disagreements exist in technical standards and data security, increasing the risk of global market fragmentation. This paper argues that in the future development of the automotive industry, the U.S. and China have both competition and vast potential for cooperation, and establishing an open, fair, and sustainable global automotive industry chain serves the interests of both nations and the world.

Keywords: Automotive Industry Transformation; New Energy Vehicles; China-US Markets; Supply Chain Security; Trade Barriers; Inflation Reduction Act

1. Introduction

Under the dual pressures of global climate change and energy transition, the automotive industry is experiencing “changes unseen in a century.” The transition from traditional internal combustion engine (ICE) vehicles to new energy vehicles (NEVs) is a key pathway to achieving “dual carbon” goals (peak carbon emissions and carbon neutrality). China and the U.S. are the world’s largest single automotive markets, and their strategic choices, development paths, and policy measures in this transformation profoundly influence the future global automotive landscape.

The Chinese NEV market has seen significant growth over the past decade, leading the world in production, sales, and penetration. While starting later, the U.S. market is accelerating its NEV adoption, supported by infrastructure laws and the IRA. This transition involves technology, national strategies, and geopolitical factors. This paper examines U.S.-China dynamics in NEV supply chains, technology standards, and trade barriers.

2. Comparison of China-US Automotive Market Development and Key Drivers

U.S. and Chinese automotive markets have different development models.

2.1 China Market: Policy-Driven Growth

China’s NEV industry grew rapidly due to strong government support and policies. These policies have created a large market and industry chain.

• China’s vehicle sales in 2024 were about 31.4 million, with NEV sales over 12 million. By Jan-Jul 2025, China’s NEV penetration was 45%. U.S. light vehicle sales in 2024 were around 16 million. U.S. EV penetration is lower than China’s (about 3.2% in H1 2021) but growing.

2.2 US Market: Incentives and Localization Challenges

The U.S. market traditionally favors larger vehicles, facing challenges in EV adoption like range concerns and charging infrastructure. The Biden administration has prioritized electrification, funding charging networks and offering IRA tax credits.

The IRA promotes North American manufacturing, requiring critical minerals and battery parts for eligible EVs to originate locally or from trade partners. This has affected some models’ eligibility for full tax credits.

3. Global NEV Supply Chain Restructuring and the China-US dynamic

Batteries are key to NEVs, relying on critical minerals and processing. The global supply chain is changing.

3.1 China’s Dominance in Upstream Supply Chain

China leads in battery manufacturing and mineral refining. From Jan-Oct 2025, CATL and BYD held over 50% of the global EV battery market share. China also refines over 50% of the world’s cobalt and is a leader in processing lithium and nickel.

• Data from sources like USGS or IEA show China’s high share in refining capacity for lithium, cobalt (around 70%), and nickel. U.S. capacity in these areas is limited.

3.2 US Efforts to Reduce Dependency

The U.S. views critical mineral security as a national security issue, and the IRA aims to foster a complete North American supply chain through incentives. However, establishing this independently is difficult in the short term. Europe and the U.S. still import a significant portion of their battery needs.

These efforts can regionalize global supply chains, potentially increasing costs and slowing the global shift to EVs.

4. International Impact of Technical Standards, Data Security, and Trade Barriers

Beyond supply chains, U.S.-China differences in technical standards and trade policies are growing.

4.1 Divergent Technical Standards: NACS vs. GB/T

In charging standards, the U.S. market is increasingly adopting Tesla’s NACS, while China uses its own GB/T standards. Different standards create compatibility issues and de facto market barriers.

4.2 Data Security and Autonomous Driving Regulations

As cars become more connected, data security and privacy are key concerns. China has strict data management rules, while the U.S. has concerns about potential data security risks from Chinese smart vehicles. These regulatory differences create compliance hurdles.

4.3 Increasing Trade Barriers

Rising protectionism is a major tension point. The U.S. recently imposed high tariffs on Chinese EV imports. These actions can disrupt international trade and influence other markets.

5. Opportunities and Challenges for U.S. and Chinese Auto Companies in Each Other’s Markets

Despite obstacles, global companies are active in both markets.

Tesla is a leading foreign player in China’s NEV market. Chinese companies like BYD and Nio are expanding in Europe but face slow progress in the U.S. due to tariffs and IRA limits.

U.S. automakers like GM and Ford face challenges electrifying their lineups in China, losing market share to local brands.

6. Conclusion and Future Outlook

The global automotive transition is a major trend. China and the U.S. are central to this transformation, acting as drivers and competitors.

China benefits from its industry chain and market demand. The U.S. seeks to rebuild its domestic industry through incentives and trade protection. The competition between the two risks fragmenting the global market.

Looking ahead, the U.S. and China share an interest in addressing climate change. Cooperation is possible in areas like autonomous driving standards, collaboration in third markets, and battery recycling technology.