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Opinion: US policy reversals under Trump scrapping EV incentives, imposing broad tariffs and triggering an oil shock have undermined American and allied automakers, while inadvertently accelerating China’s global dominance in EVs, explains Strategic Analysis Australia’s Michael Shoebridge.
We’re told the Trump administration is playing 16-dimensional chess in its reshaping of the world economy to make America great again. But the chess moves we’ve seen so far in the key auto manufacturing sector are damaging own goals that hurt America’s homegrown firms and those of its key democratic partners in Asia.
These policy shifts have also given China an unexpected, but no doubt, welcome extra competitive edge, right when a sluggish Chinese domestic economy could do with some help.
Let’s go back in time. It’s 2021 and the Biden administration has realised that American companies are well behind the curve in the areas of renewable energy, manufacturing and electric vehicles. And the US economy was still struggling to come out of the after-effects of the Global Financial Crisis, with a continued battle to fight underlying inflation. Joe Biden wanted to rebuild American manufacturing strength and focus on emerging areas of prosperity and growth.
A huge policy program was put in place, with the original even more expansive “Build Back Better” plan scaled back through negotiations with Congress (that used to happen back then). The Inflation Reduction Act that emerged had multibillion-dollar incentives for companies to invest in clean energy and electric vehicle (EV) design and production. At its core was a US$7,500 tax credit for purchasers of EVs with final assembly in North America.
Ford, Stellantis and General Motors all based large expansions in their EV development and production capacity on this new federal program, as did key Japanese car makers like Honda and Nissan. All these companies were banking on two things:
- Supportive US government policy.
- A growing and profitable EV market in North America.
They were wrong to do this, because the Trump administration’s suite of decisions and policy reversals have turned sensible, huge, corporate investments into disastrous long-term corporate losses – and the damage from the Iran war’s effect on energy prices and the market for fossil fuel-powered transport globally is still unfolding.
When President Donald Trump began his second term, the Big 3 US carmakers – Ford, Stellantis and GM – were in the middle of a painful but necessary transition from companies predominantly focused on large SUV-style vehicles that had been very profitable and popular towards a balance between these and new types of EV, including electric models of popular lines like the F-150 pick-up. They were selling EVs but not making money from them as the US market grew and matured.
Over in Japan, Nissan and Honda had both made historically huge investments to fast-track EV design, development and production and planned to use the profitable North American market to make the transition to this future business model possible.
Trump had other plans. And these didn’t leave damaging US, Japanese and South Korean car makers to chance. President Trump got to work on Inauguration Day in January 2025 using one of his first executive orders to cancel Biden’s clean energy and electric car and truck multibillion-dollar incentive programs. With a sense of fun, he titled it “Unleashing American Energy”.
His April 2025 “Liberation Day” tariffs that analysts had assumed would focus on Chinese manufacturing and high technology areas challenging Americas did something entirely different – they attacked friend and foe alike and so doubled down on the damage of his January executive order.
His shapeshifting tariffs since then have had a damaging effect on Japanese and South Korean car makers, through the combination of high steel and aluminium tariffs and tariffs focused specifically on imported cars (however they are powered). And ongoing uncertainty about tariffs just adds risk to these companies.
As a result, every one of Japan’s seven top car makers has now reported losses this year, primarily due to whiplashing, negative US government policy. South Korean car makers Hyundai and Kia are in better shape because they had already developed successful EVs at competitive prices. Nevertheless, both have shown sharply reduced operating profits even as their US sales have grown. The fact that homegrown US carmakers and Japanese competitors have largely vacated the field now is helping reduce the impact of US policy on these two companies.
Chinese EV makers, by contrast, have been gloriously unaffected by the 180-degree reversals in US policy and the additional damage to US, Japanese and Korean auto outfits from steel and aluminium tariffs. That’s because the Chinese companies were locked out of the US market and they still are. This has turned out to be an advantage.
So, as Honda racks up the largest loss in its corporate history (booked at US$15.7 billion earlier this year) and cancels EV production plans, America’s own car giants, Ford, GM and Stellantis, are facing similar enormous corporate trouble and losses, which analysts estimate at over US$100 billion.
Meanwhile, China’s BYD and other Chinese EV makers’ sales have accelerated fast everywhere but America. Profit levels are slim because of internal competition within China, but the path to globally dominant companies in the EV sector looks much clearer than it did as Biden’s time in the White House wound down in December 2024.
Even Canada has agreed to let a limited quota of Chinese EVS into its home market, owing to the difficulties in the Canada–America relationship. Europe is trying to protect its home auto industry but is facing a flood of Chinese EV exports and the prospect of Chinese outfits setting up in Europe as traditional firms struggle to keep factories open.
Here in Australia, we’ve opened our doors to Chinese EVs and their market share is growing fast. The Gulf oil shock is already accelerating this growth, making Australia a seller’s market for as many EVs as can be got off the boats.
And then there’s the war, stupid
If this was a bleak picture before March 2026, it’s bleaker now because of another US own goal for its own auto makers and those of its key partners in Japan and South Korea – the Iran war.
Not only are Japan and South Korea (and key global chipmaker Taiwan) hugely exposed to Gulf oil and other key manufacturing inputs like helium, but the market effect of this oil shock will drive consumers and governments to embrace EVs even faster than they were before the first bomb dropped on Tehran.
Higher oil prices will persist for years in the aftermath of this war, and that hands a further competitive advantage in this growing core global sector to China’s burgeoning EV ecosystem. It also is another hammer blow to US car makers and to America’s key high technology partners in Asia.
Chinese EV companies have some strong advantages because of the breadth of their supply chains and – in a glaring contrast to the American environment– reliable long-term Chinese government support. They were already highly cost and product competitive against Japanese, South Korean, US and European automakers in the field of EVs, with those companies playing catch-up before hitting the brick wall of Trump administration policies.
But BYD, Geely and others have now had a remarkable and unexpected helping hand from the cumulative set of damaging policies that the Trump administration has put in place just one year into a four-year term.
It’s a remarkable gift from Trump to Xi Jinping that I hope he expresses enough gratitude for when the Trump–Xi meeting happens sometime in May or later, perhaps by buying some soy beans from struggling US farmers...
It would be hard to sketch out a better recipe for America to have followed if the goal was economic self-harm and damage to its key democratic partners in north Asia. And it’d be harder still to see a better way for a US administration to paint itself and its partners out of a core industry of the future while enabling China’s rise.
Oh – it’s probably worth mentioning that a vibrant EV supply chain is a big advantage if you want to make lots of diverse types of drones.
The Trump administration may have more novel ways to damage itself and its allies in its 16 dimensional chess game that it is yet to unveil. But to date it’s been enormously effective – just in wholly negative ways for the future security and prosperity of its own citizens and those of its long-term partners in Asia.
Michael Shoebridge is a founder and director of Strategic Analysis Australia. This article has been republished with the author’s permission.
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