Trump Can Make a Deal to Save America’s Auto Industry

The U.S. auto manufacturing industry is facing a crisis. A flood of high-quality, affordable Chinese cars is sweeping the globe. The Japanese auto industry has seen its market share plummet across Southeast Asia in just a few months, likely serving as the death knell for an already struggling Nissan. German auto manufacturers such as Volkswagen have also seen declining profit margins and declining sales in China, increasingly pressuring them out of consumer mass markets both for internal combustion engine and electric vehicles (EVs).

The market situation is not much better for U.S. auto manufacturers. General Motors is writing off billions of dollars of investments in the Chinese market, as the company is fundamentally unable to compete with its Chinese counterparts. Meanwhile, Chinese EV giant BYD surpassed Ford’s global sales late last year, signaling a dramatic shift in global market leadership. In a September interview with the Wall Street Journal, Ford CEO Jim Farley called China’s automakers an “existential threat.”

Without active policy engagement from the U.S. government, the country’s auto industry is at risk of becoming globally uncompetitive as well as falling behind on crucial manufacturing capabilities and drivetrain propulsion technologies.

A globally competitive U.S. auto industry is critical for national economic security in several different ways. The first, of course, is that the auto industry is a major employer, supporting nearly a million American workers. But auto manufacturing is also important as a techno-industrial base. The industry serves as a reservoir of industrial capacity—during World War II, for example, Ford factories built the B-24 bombers, jeeps, and Sherman tanks that carried the Allied armies from Normandy, France, to Berlin. A robust auto manufacturing base is key to the idea, recently voiced by Army Gen. Christopher Cavoli, that “industrial capacity is deterrence.”

A technologically obsolescent auto manufacturing industry also jeopardizes broader industrial capability. China’s rise is fueled not only by cheaper labor and government subsidies, but also by innovation that has produced technological leads. China is already the world leader in deploying robotics for manufacturing, which contributes to the country’s manufacturing advantage and industrial capacity. A weakened auto industry would further jeopardize the United States’ efforts to catch up on robotics and other key indicators of advanced manufacturing.

In many ways, automobiles are integrated platforms of the most advanced technologies that society has to offer. Auto manufacturing is not just a matter of metal-shaping and propulsion technologies—now, it even includes the development of artificial intelligence systems. For instance, BYD recently announced that it will make its advanced driver-assistance system free on many of its cars, surpassing the customer offerings for autonomy of almost every other automobile maker.

Despite the United States’s tremendous lead in building frontier AI models, China is still a leader in deploying commercial AI systems, particularly in surveillance applications and now in self-driving technology as well. The race for global auto dominance is about more than just the cars—it also includes competition for technological leadership in software and AI.

But this is not the first time that the U.S. auto manufacturing sector has faced stiff competition from new international competitors. During the 1970s and 1980s, companies within the ascendant Japanese auto manufacturing industry challenged Detroit with their affordable mass-market small cars during a similar time of energy crisis. The administration of then-U.S. President Ronald Reagan demonstrated how targeted policy intervention could reshape competitive dynamics through bilateral negotiations and import quotas.

These policy measures helped support the onshoring of domestic auto manufacturing and the creation of multiple joint ventures between U.S. and Japanese auto manufacturers, including Toyota and General Motors as well as Chrysler and Mitsubishi. It also allowed for the diffusion of Japanese management practices such as kaizen—the philosophy of promoting a culture of continuous improvement—that U.S. auto manufacturers also adopted to streamline their operations.

Some of the same factories kept open by these joint ventures are now Tesla and Rivian manufacturing plants, demonstrating how maintaining the overall success of the U.S. auto manufacturing base can serve as an infrastructure base to build the next generation of firms.

China adopted very similar strategies to create its own massively successful auto manufacturing sector. Starting in the mid-1980s, China famously only allowed U.S. auto manufacturers into the country through joint ventures with domestic auto companies and placed foreign equity caps on those ventures. The Chinese companies have subsequently had decades to benefit from U.S. engineering and know-how as well as positive spillovers from foreign direct investment.

Beijing also placed tariffs on car imports and excluded imported cars from generous consumer subsidies. As a result, China spent decades incubating a nascent auto manufacturing industry in part by stifling foreign competition and stealing technology from Western auto manufacturers.

The United States now has an opportunity to use Reagan’s playbook to save domestic auto manufacturing and take back what China stole from the U.S. auto manufacturing industry. President Donald Trump suggested on the campaign trail in March 2024 that if Chinese auto manufacturers are willing to build factories in the United States and staff them with American workers, then they should be allowed to sell their cars there.

But the Trump administration should go even further—if Chinese companies want to sell cars in the United States, then they should not only have to manufacture them in the country, but also be required to do so through joint ventures with U.S. companies. These joint ventures could also be structured to ensure compliance with regulations regarding foreign entities of concern.

This approach should certainly be combined with restrictions on Chinese-made imports, including through tariffs. However, tariffs alone would not be sufficient. While they may provide U.S. auto manufacturers a temporary respite in the U.S. market, tariffs do not promote global competitiveness for those manufacturers. To do that will require capital and technology.

As a result, it is important for U.S. auto manufacturers to continue to be exposed to competitive technologies and techniques to prevent stagnation or complacency. Forcing domestic joint ventures essentially subsidizes investment and U.S. jobs without requiring government subsidies, all while ensuring that U.S. auto manufacturers are able to compete in a global marketplace.

Indeed, the demand for access to the U.S. market through joint ventures could even attract Big Tech contenders to step into the automobile space—as Apple has tried to do in the past—if they had favorable access to foreign technology.

Trump prides himself on being a dealmaker—and this proposal demands precisely the kind of unconventional alliance-building at which he claims to excel. By bringing U.S. and Chinese auto manufacturers to the negotiating table, Trump has a historic opportunity to secure a deal that bolsters the United States’ manufacturing jobs and investment.

The U.S. auto industry stands at a crossroads: The coming years will reveal whether Chinese manufacturers will dominate developing markets, rendering stalwarts such as Ford and General Motors obsolete, or whether the United States’ techno-industrial base will once again realize its tradition of leapfrog innovation.

Should Trump successfully deliver on his campaign promise to bring the country foreign investment and jobs, then reclaiming U.S. automobile leadership could become a defining achievement of his presidency.