Electric Avenues: US Industrial Strategy and the China Challenge

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.