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Last week, the Biden administration locked in a package of steep tariffs on Chinese goods, including a 100% tax on electric vehicles made in China.
The new tariffs also cover Chinese solar panels, EV batteries, steel, aluminum and other key minerals as part of a larger effort to relocate manufacturing, boost U.S. jobs and incentivize sales for American carmakers.
The move also comes six weeks before the November election, where Michigan, home of the American car industry, continues to be a battleground state.
Detroit is still the home base for two of the Big Three automakers, General Motors Co (NYSE:GM) and Ford Motor Co (NYSE:F).
Protectionist policies are a direct response to calls for relief for U.S. carmakers. Earlier this year, Ford executives warned that a flood of Chinese EV would mean the demise of the U.S. auto industry. The sentiment was echoed by Tesla Inc (NASDAQ:TSLA) CEO Elon Musk.
As Chinese automakers like BYD Company (OTC:BYDDY) and Nio Inc. (NYSE:NIO) expand their market share across Europe, Asia, and the Middle East, protectionist policies are increasingly viewed as a response to rising competition, both by government officials and automotive executives.
But what if they aren't?
A Bloomberg report argues that letting Chinese companies in could be the lifeline that U.S. carmakers need in a time of stagnating growth.
Electric vehicles have surpassed 50% of all new car sales in China this summer. But for the U.S. that figure is less than 10% and has slowed down from previous years.
EV sales in the U.S. are significantly outpaced globally, where electric vehicles now make up 35% of all car sales around the world.
The U.S.'s inability to catch up with global trends is partially explained by protectionist state policies and partially by the peculiarities of its market, which is highly focused on large vehicles like SUVs and pick-up trucks.
Selling expensive SUVs and trucks has been a positive strategy for Detroit carmakers, but has also hampered their ability to electrify the market, as heavy vehicles are harder to turn electric than compact cars and sedans.
Last month, Ford scrapped an electric SUV and delayed the launch of its electric pick-up truck, citing slow EV demand in the U.S.
Detroit carmakers are increasingly exploring Chinese technology for their future EV models.
In a recent report, Ford CEO Jim Farley told The Wall Street Journal that Chinese EV companies are significantly ahead of Detroit automakers, following his trip to the country.
Ford has reportedly been dissecting Chinese EVs in an effort to understand how they're managing to reach such low prices and still keep superb quality.
General Motors is in talks to acquire electric vehicle batteries made utilizing technology from China's Contemporary Amperex Technology Co.
While opening the door to Chinese companies would destabilize the local market in the short term, it would also push Detroit carmakers to become more competitive.
China's automotive industry grew from being almost insignificant some decades ago, to becoming a global leader today.
This growth was driven by a requirement for foreign automakers to partner with local manufacturers to access the Chinese market, a rule implemented after the country opened up to foreign companies in the 1980s.
According to TrendForce's February 2024 report, Chinese manufacturers account for three of the top five spots for global market share.
BYD has 17%,Guangzhou Automobile Group Co Ltd (OTC:GNZUF) has 5.2% and Wuling Motors Holdings Ltd (OTC:WLMTF) has 4.9%. Tesla is at the top of the list with 19% while Volkswagen (OTC:VWAPY) is number five.
Pairing foreign companies with local manufacturers has allowed the Chinese industry to gain the knowledge and expertise needed to become a giant in just a few decades. A similar deal could feed Chinese knowhow into the U.S. car industry, while also allowing the country to speed up its shift to a decarbonized car industry.
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