The Tariff Wall Hides America’s EV Gap Without Closing It

On December 15, Ford said it was canceling three planned electric vehicles and had ended production of the current F-150 Lightning.^[1] Its Tennessee Electric Vehicle Center will build gasoline trucks from 2029 in place of a planned electric one,^[2] and its pure-electric development will center on smaller, affordable models. Ford expects about $19.5 billion in special items, most of them in the fourth quarter. Its filing with securities regulators^[1] says the end of federal tax credits for electric vehicles has hurt adoption. A week earlier, the China Passenger Car Association reported that plug-in cars took 59.3% of November’s retail car sales^[3] in China. Washington’s policy is a wall plus a retreat: tariffs on Chinese electric cars^[4] and no federal tax credit for electric cars acquired after September 30.^[5] The wall keeps China’s cheaper cars out of American showrooms. It does not, by itself, make American ones cheaper. Protection without proportionate investment hides a competitiveness gap without closing it.

The gap opened in four years. In 2015, electric cars, counting battery-electric and plug-in hybrid models, made up about 1% of new car sales in each of China, the European Union and the United States, according to the International Energy Agency’s^[6] data. As late as 2020, China’s share was 5.7%. By 2024 it was 48%, against 21% in the EU and 10% here. The EU’s share jumped in 2020 and 2021 and has held near 21% since. America’s rose 2 to 3 percentage points a year from 2020 to 2023, then edged up to 10% in 2024. This year China passed half: through November, 11.47 million of the 21.48 million passenger cars sold at retail there were plug-ins,^[7] or 53%, by the association’s count.

Electric share of new car sales in China, the EU and the U.S., 2015 to 2024

China did not get there by leaving it to the market. Scott Kennedy^[8] of the Center for Strategic and International Studies puts Chinese government support for the industry at $230.9 billion from 2009 to 2023, most of it buyer rebates and an exemption from the 10% vehicle purchase tax.^[9] From a free-market perspective, that is a distortion. So is a tariff. The money helped build volume, and volume outlasts subsidies. China made more than 70% of the world’s electric cars in 2024,^[10] and its battery pack prices fell about 30% that year,^[11] against 10% to 15% in Europe and the United States. You cannot make electric cars cheaply without massive manufacturing volume. Protection can buy time to reach scale. It cannot substitute for investment in cheaper cars.

Volume shows up in the price. In 2024 the median sticker price of a battery-electric car sold in China was about $24,000, roughly $700 below the median for a combustion car.^[12] Two-thirds of all electric cars sold there were priced below their conventional equivalents before purchase incentives, which, the IEA says, helped lift sales “even as government incentives decreased.”^[11] In the United States, the average battery-electric car remained 30% more expensive than its conventional counterpart. Only two battery-electric models were priced below $30,000,^[12] against more than 50 combustion models. The comparison that matters most is the SUV, a category that in the IEA’s figures includes pickup trucks and accounts for three-quarters of U.S. car sales. Comparing sales-weighted average sticker prices within each market, the IEA puts China’s battery-electric SUV premium over conventional SUVs at 37% in 2021 and 2% in 2024, while Germany’s slipped from 23% to 20%. In the United States it was 34% in 2021, peaked at 50% in 2022 and stood at 26% in 2024, unchanged from the year before. The IEA raised Chinese electric prices in these figures by 10%^[13] to offset that tax exemption, so China’s near-parity holds with the tax counted.

Price premium of electric SUVs over conventional SUVs, 2021 and 2024

A battery-electric car made in China faces four duties at the American border, and they add rather than compound: the ordinary 2.5% rate,^[14] the 100% Section 301 duty in force since September 27, 2024,^[4] the 25% Section 232 tariff on imported cars^[15] and a 10% duty on Chinese goods tied to fentanyl.^[16] An April executive order^[17] keeps the Section 232 tariff cumulative with the other three, so the duties total 137.5% of the car’s customs value. That rules out a near-term flood of cheap Chinese cars. If American carmakers were competitive on both price and technology, they would not need a tariff to hold off new entrants. The tariff is a crutch. In raising the duty on electric vehicles, the U.S. trade representative said the increase would advance U.S. policy “to incentivize the development of, and investments in, a robust electric vehicle market.”^[4] Congress has since ended the federal purchase credit.^[5] By Cox Automotive’s estimates, battery-electric vehicles’ share of new U.S. vehicle sales, a measure that leaves out the plug-in hybrids counted in the first chart, fell from a record 10.5% in the third quarter,^[18] when buyers rushed to beat the deadline, to 5.4% in November.^[19] Cox says the expiration of the federal credit continues to weigh on demand.

Motor vehicle and parts manufacturing accounted for about 982,000 jobs in November, by the Bureau of Labor Statistics’^[20] preliminary count. Studying the earlier surge of Chinese imports, David Autor, David Dorn and Gordon Hanson^[21] concluded that adjustment in local labor markets is “remarkably slow,” with wages and labor-force participation depressed for at least a full decade. A subsidized surge of cars could do the same to the towns where cars are built, and the subsidies are real. Kennedy^[8] wrote last year that China had some 200 EV producers with far more combined capacity than their home market could bear, and that the result was a “bitter price war” at home and a push to export. A duty that offsets such support defends a market instead of distorting it. Tariffs can also lift production at home: the trade representative’s notice reports that economic analyses generally find the earlier Section 301 duties raised U.S. production in the ten sectors most directly affected,^[4] at a small cost to aggregate economic welfare. Then there is security. The Commerce Department found in January^[22] that connected-car hardware and software tied to China or Russia pose “an undue and unacceptable risk to national security,” because malicious access could expose drivers’ data and let an adversary “remotely manipulate vehicles.”

Security has its own instrument: the same rule bars carmakers with a sufficient nexus to China or Russia from selling new connected vehicles here from model year 2027,^[22] even cars built in the United States. That protection does not depend on the tariff. Subsidies have a measured answer too. After an anti-subsidy investigation, the European Commission^[23] set countervailing duties of 17.0%, 18.8% and 35.3% on the three Chinese exporters it sampled. Added to the ordinary 10% duty on battery-electric imports,^[24] those come to 27.0%, 28.8% and 45.3%. America’s added duties rest on a technology-transfer case, a national-security finding and an emergency declared over fentanyl, and together they exclude rather than offset. Exclusion protects jobs only while the wall stands and only in the market it surrounds, and time is worth only what gets built with it. Competing would cost some car towns jobs, and I will not pretend otherwise. Without proportionate investment, the wall only postpones that cost.

None of this makes American buyers wrong to hesitate, and I share some of their doubts. On cross-country road trips, I have been told that in an electric car I could not take the route I wanted and would have to follow a prescribed plan, assuming the chargers worked. It turned me off. At the end of 2024 the United States, a car market about two-thirds the size of China’s, had 53,000 public fast chargers;^[6] China had 1.6 million. In a city thick with chargers, an electric car works well. Elsewhere it competes with a few minutes at a gas pump. The market is speaking, and I would let it. It is speaking, though, with the cheaper offers shut out.

The larger cost falls outside the wall. In emerging markets in Asia and Latin America, electric car sales jumped more than 60% in 2024,^[11] and across emerging economies outside China, Chinese imports supplied 75% of the increase. They made up 85% of electric car sales in both Brazil and Thailand, and in Thailand the average battery-electric car has reached price parity with the average conventional one. In Brazil the price gap between battery-electric and conventional cars shrank to 25% in 2024 from more than 100% a year earlier. In Mexico the premium fell to 50% in 2024 from more than 100% as Chinese imports reached two-thirds of electric car sales. This year China exported 2.15 million plug-in passenger cars through November,^[7] up 82.6%, by the passenger car association’s count.

A wall can keep a cheaper car out of an American showroom. It cannot keep it out of São Paulo, Bangkok or Mexico City, and those are markets American carmakers need if they are to reach the volume that makes cars cheap. Each year the wall stands, Chinese makers add scale in markets it does not cover. That is the long-term risk for American carmakers: confinement to a protected home market while the rest of the world moves to Chinese-dominated supply chains.