Uncertainties loom about the future of electric vehicles (EVs) versus internal combustion engines (ICEs), investment strategies, policy changes, and foreign investments.
As the U.S. presidential election looms this November, the domestic auto industry stands at a crucial crossroads, facing uncertainties about the future of electric vehicles (EVs) versus internal combustion engines (ICEs) and the impact of foreign investments. Foreign automakers are also closely monitoring potential new tariff regimes that could disrupt global supply chains, alter trade dynamics, and affect strategic plans.
Legislative Impacts and Investment Strategies
In recent years, the U.S. automotive sector has been significantly shaped by legislation like the Infrastructure Investment and Jobs Act, the Inflation Reduction Act (IRA), and the CHIPS and Science Act. These acts, introduced by the Biden administration, have driven substantial investments in infrastructure expansion, semiconductor capacity building, and clean energy initiatives. A Democratic victory under Kamala Harris would likely continue these targeted investments and subsidies, focusing on transitioning to a green economy. A key component of this transition is sustainable transport, emphasizing EVs, related charging networks, and battery manufacturing facilities.
Incentives aimed at boosting domestic semiconductor manufacturing capabilities have been driven by the need to reduce reliance on Asia-based chip manufacturers. Both Republican and Democratic administrations are expected to support these initiatives, though Republicans might favor U.S. companies like Micron and Intel over East Asian manufacturers like TSMC and Samsung, which have collectively invested around $36 billion in U.S. projects.
Diverging Paths
A Trump administration, known for its climate change skepticism and support for traditional ICEs, could slash funding for clean energy initiatives, jeopardizing the progress of the EV sector. Trump has criticized the current administration’s support for EVs, labeling it a “green scam” detrimental to the ICE-focused U.S. auto industry. He has declared his intention to “end the electric vehicle mandate” and roll back policies such as the $7,500 purchase subsidies that support EV adoption. Limiting or ending these subsidies would significantly hinder EV sales at a time when they are struggling to gain a foothold in the U.S. market.
Additionally, Trump has threatened to impose a 100% tariff on all cars from Chinese-owned manufacturing facilities, regardless of their location. While this aligns with his “Make America Great Again” slogan, it could exacerbate inflationary pressures on U.S. consumers, discouraging them from purchasing higher-priced, domestically made models.
A Republican administration is also poised to ease fuel economy and emissions compliance regulations and challenge roadmaps like California’s, which aim to phase out ICEs and mandate that all new cars and light trucks sold by 2035 be electric or plug-in hybrid. This would slow the transition from ICE to hybrids, battery EVs, and plug-in EVs. Conversely, a Democratic president would likely continue to support EV production and adoption, enforce stricter fuel economy standards, invest in charging networks, and offer tax credits and incentives to make EVs more affordable. Such policies aim to achieve the target of 50% of all new car sales in the U.S. being EVs by 2030.
The Biden administration’s push for clean energy and job creation has attracted significant foreign investments, including Toyota’s $8 billion plant in North Carolina and Hyundai’s $4 billion project in Georgia. Several states, including Michigan, North Carolina, South Carolina, Georgia, Idaho, Indiana, Texas, Nevada, and Tennessee, have benefited from new investments in clean energy initiatives. Any attempt by a Trump administration to repudiate these initiatives would harm investment stimulus and job creation, likely facing resistance from these states.
The Chinese Factor
Tariffs on imported vehicles and automotive parts will be a cornerstone of Trump’s “America First” agenda. These tariffs aim to boost domestic manufacturing, protect U.S. automakers from foreign competition, create jobs, and strengthen the U.S. economy. However, this could backfire by increasing production costs for automakers reliant on imported components, leading to higher vehicle prices and dampening consumer demand.
Trade tensions with China remain a significant challenge. President Biden increased tariffs from 25% to 100% on Chinese EVs, raised levies on lithium-ion EV batteries from 7.5% to 25%, and doubled tariffs on semiconductors from 25% to 50%. Although these restrictions, effective August 1st, impact only about $18 billion of Chinese exports to the U.S., a Democratic president is likely to maintain a protectionist stance, especially towards China.
Chinese automakers like BYD are seeking to bypass tariffs by establishing facilities in Mexico, raising questions about the USMCA trade agreement, which is up for renewal in 2026. Notably, Democratic nominee Kamala Harris received the endorsement of the United Auto Workers (UAW) Union, partly due to her opposition to the USMCA trade deal.
At the recent Republican Convention in Milwaukee, Trump expressed a willingness to allow Chinese automakers to build cars in the U.S. and employ American workers, a departure from the Biden administration’s exclusionary stance on vehicles with ties to China. For instance, companies with at least 1/4th Chinese government ownership are considered “foreign entities of concern” and tax credit benefits are disallowed for them. However, Trump warned that if Chinese manufacturers built in Mexico and shipped products across the border, a 200% tax would be imposed. This development bears watching, as it could accelerate the U.S. transition to EVs and provide an entry point for Chinese manufacturers into the market.
Beyond China, Trump has threatened to impose tariffs on trade partners like the EU, potentially resulting in reciprocal tariffs that could harm the competitiveness of U.S. vehicle and parts exports. This could create challenges for U.S. automakers operating in global markets.
Conclusion
As the world awaits the outcome of the U.S. presidential election, the auto industry faces a period of uncertainty. Policy changes could affect product development, sourcing strategies, and investment roadmaps. Both Democrats and Republicans are expected to use economic intervention and tariffs to protect U.S. automotive manufacturing interests from foreign competition. Domestic semiconductor production will receive strong support from both parties. While Democrats will push forward on sustainable EVs and stricter emissions standards, Republicans under Trump will favor conventional fossil fuel-driven cars and eschew fuel economy regulations. Continued investments will be crucial to ensuring the U.S. automotive industry remains competitive on the global stage.
With inputs from Amrita Shetty, Senior Manager, Communications & Content – Mobility
