The Electric Vehicle Industry: A Geopolitical Battlefield

The future of transportation is electric, but the path to this future is fraught with geopolitical tension. The electric vehicle (EV) industry is no longer just about cars; it’s a battleground where economic power, national security, and sustainable energy collide. This article delves into the escalating trade war between the United States and China and its profound impact on the global EV landscape, examining the shifting alliances, protectionist measures, and the race for dominance in this crucial sector.

China’s Dominance in the EV Supply Chain:

China has emerged as a dominant force in the EV industry, holding a significant share of the global supply chain. This control spans from raw material extraction and processing to battery manufacturing and vehicle assembly. In 2024, China controlled approximately 80% of global battery cell manufacturing and over 85% of active materials used in batteries, granting it a strategic advantage that is difficult for other nations to overcome in the short term.

China’s control over the primary production stages has significantly boosted its EV production, reaching nearly 12.4 million units, equivalent to over 70% of global production in 2024. Domestic sales, fueled by consumer incentives, reached approximately 11 million units last year, accounting for two-thirds of the global sales of over 17 million EVs, according to the International Energy Agency. This strong position presents significant challenges for the West, with efforts to decouple from Chinese supply chains requiring substantial investments and a lengthy time frame for local industry repositioning.

Trade Protectionism: US vs. China

In recent years, the US has adopted an aggressive stance against Chinese EV manufacturing. The previous administration, led by Joe Biden, increased tariffs on Chinese EVs to 100% and lithium-ion batteries to 25% in May 2024. Shortly after, in October 2024, the European Union imposed tariffs of up to 45.3% on certain Chinese EV imports for five years.

Trade protectionism intensified with the arrival of the Trump administration in January. This involved imposing an additional tariff of 145% on Chinese imports, including EV components, and China’s response with counter-tariffs of up to 125% on American imports. The US has repeatedly accused China of restricting the export of rare earth minerals to the US market, leading to further protectionist measures. These measures include restrictions on advanced technology exports to Beijing and limiting the acceptance of Chinese students into US universities.

China’s dominance of the rare earth minerals market is a core point of contention that hinders the achievement of a long-term trade agreement between the US and China. Washington sees China’s influence in this area as a strategic lever that threatens the security of the global supply chains for the EV industry and other strategic industries.

US Efforts to Localize EV Production:

The Biden administration focused on supporting the localization of the EV industry through protectionist measures and a clear manufacturing strategy. The 2022 Inflation Reduction Act played a central role in the US’s efforts to promote the domestic EV industry, offering a series of incentives for clean energy and EV production, including tax credits of up to $7,500 for EV purchases. However, these are contingent on vehicles and battery components being produced domestically or in allied countries.

Additionally, the Biden administration allocated $5 billion for expanding the EV charging infrastructure, along with 27 states providing tax incentives in 2024. The administration also initiated efforts to coordinate and enhance cooperation with allied nations to establish mining projects, battery factories, and EV production facilities in the US market and other markets.

Uncertainty and the Future of the US EV Market:

While the Biden administration focused on accelerating the transition to EVs, the Trump administration prioritized supporting fossil fuels and traditional vehicles, which may hinder the US’s leadership in the EV race. Trump’s policies are marked by a cautious stance on EV support, with a possible phase-out of the $7,500 tax credit, relaxation of EPA emission standards, and a halt to the National Electric Vehicle Infrastructure program. This has amplified uncertainty in the EV sector.

This instability may hinder the growth of EV sales in the US, which reached 1.6 million units in 2024 with a 10% growth rate, which is less than the 40% observed in 2023, indicating that the market is reaching a point of early maturity. The need to localize battery and EV manufacturing in the US presents challenges such as higher production costs, a lack of skilled labor, regulatory complexities, and difficulties with creating a domestic supply chain for raw materials.

International Repercussions:

The trade war between the US and China is accelerating changes in the global EV supply chains. Governments and global car manufacturers are rethinking their manufacturing strategies, regionalizing, and reducing dependence on China, reflected in the following developments:

• China +1 Model: The US and European governments and companies are rethinking supply chains to adopt flexible industrial strategies, also known as “China +1,” which involves restructuring and distributing manufacturing centers in more geographic areas. The aim is to reduce risks and enhance the flexibility of supply chains, even if it means greater operational complexity.

While the US government is developing battery manufacturing and mining within its borders to enhance industrial security and limit exposure to market shocks, it is also working to enhance industrial integration with its partners and allies in Asia. India, along with Malaysia, Vietnam, and other nations, have emerged as potential new centers for EV and battery supply chains. Nevertheless, this production shift could introduce new challenges related to increased and complex operational costs due to a limited ability to meet specialized industrial demand.

• Demand Markets: Escalating trade restrictions and rising costs may slow the global demand for EVs, especially in Western markets dependent on tax incentives. Projections from S&P Global Mobility indicate an expected decline in global EV sales of 793,000 units in 2025, rising to 1.05 million units in 2026, as a result of the trade tensions and US tariffs.

With shrinking opportunities in Western markets due to the trade war, Chinese EV companies may seek new demand markets in Africa, South America, and elsewhere. These markets represent promising long-term opportunities for China’s production, provided they can provide more government support and financial incentives to encourage consumer EV purchases, alongside enhanced charging infrastructure. However, it is worth noting that demand for EVs in emerging markets is highly sensitive to the prices of alternative fuels.

Conclusion:

As China solidifies its industrial dominance and tightens its grip on the EV supply chains, the US is attempting to curb China’s influence through a range of protectionist tools, legislative incentives, and strengthened international alliances. This creates a new chapter where the globalization of the EV trade is in decline, alongside the establishment of regional and closed production models and supply chains. The future of the EV industry is being shaped by this economic contest, and how the players navigate these turbulent waters will determine the success of the global transition to electric mobility.