---
title: "US Auto Industry Needs National Strategy to Meet China Challenge, ITIF Report Argues"
summary: |-
  The U.S. auto industry is facing a familiar test: innovative foreign competitors, lower-cost production abroad, and a wave of technological change that is reshaping the global market. America cannot afford to repeat previous mistakes as China races to dominate electric vehicles, batteries, autonomy, and advanced automotive manufacturing.
date: "2026-05-11"
content_type: "Press Releases"
canonical_url: "https://itif.org/publications/2026/05/11/us-auto-industry-needs-national-strategy-to-meet-china-challenge/"
---

# US Auto Industry Needs National Strategy to Meet China Challenge, ITIF Report Argues

WASHINGTON—The U.S. auto industry is facing a familiar test: innovative foreign competitors, lower-cost production abroad, and a wave of technological change that is reshaping the global market. The last time a challenge of this scale hit the industry, U.S. automakers took 10 to 15 years to adapt to Japanese lean production techniques, losing market share and competitiveness that were never fully recovered. A [new report](https://itif.org/publications/2026/05/11/america-needs-an-industrial-strategy-for-motor-vehicles/) from the Information Technology and Innovation Foundation (ITIF), the world’s leading think tank for science and technology policy, warns that America cannot afford to repeat previous mistakes as China races to dominate electric vehicles, batteries, autonomy, and advanced automotive manufacturing.

“The United States must act, and act now” said Stephen Ezell, vice president for global innovation policy at ITIF and co-author of the report. “The U.S. auto industry has faced this kind of competitiveness shock before when Japanese automakers forced a reckoning in the 1980s, and U.S. firms took far too long to adapt. Today, China now poses an even broader challenge that spans EVs, batteries, software, scale, and advanced manufacturing. America has to respond quickly, decisively, and strategically.”

The [new report](https://itif.org/publications/2026/05/11/america-needs-an-industrial-strategy-for-motor-vehicles/) is the final installment in a [three-part series](https://itif.org/search/?skeyword=%23autostrategyseries&ssortByOrder=newest) that shows America’s auto industry competitiveness did not erode overnight. It deteriorated as foreign competitors built stronger production systems, as Mexico became a lower-cost manufacturing platform, and as U.S. firms and policymakers failed to respond quickly enough to structural changes in global competition. China now presents the next test, combining the process and scale advantages that reshaped the industry in the past with aggressive state-sponsored subsidies and leadership ambitions in the technologies that will define the industry’s future.

The warning signs are stark, and the decline has been significant. America’s share of global automobile production fell from 46 percent in 1965 to 20 percent in 1990 and just 14.7 percent today. The Big Three automakers’ share of the U.S. auto market has fallen from 92 percent in 1965 to 38 percent today. From 1963 to 2023, the accumulated U.S. motor vehicles trade deficit reached $3.3 trillion in 2023 dollars. By 2022, autos had become far less central to the U.S. economy than they are to the global economy, underscoring how much ground America has lost.

But autos are not just another consumer market; they are a pillar of U.S. economic and industrial power. The automotive ecosystem contributes more than $1.2 trillion to the U.S. economy each year, roughly 5 percent of GDP. It employs 47,000 engineers, invests more than $26 billion in R&D annually, and supports more than 5,600 specialized domestic suppliers. Those suppliers provide capabilities such as precision machining and casting that are critical for cars, as well as dual-use and defense industries. Losing ground in autos means weakening a key component of the industrial base America relies on to compete, innovate, and defend itself.

That makes China’s rise especially alarming. The country best positioned to seize global auto leadership is also America’s chief strategic rival. As a share of GDP, China’s auto industry is 2.6 times larger than America’s, while Mexico’s is 7.3 times larger. China has channeled an estimated $230.9 billion in subsidies and support to its EV sector from 2009 to 2023, fueling overcapacity and global expansion. EVs and plug-in hybrids now account for 26 percent of the global car market, up from just 3 percent in 2019, and Chinese EV makers are already gaining dominant shares in key emerging markets. If the United States fails to respond, it risks ceding one of the world’s most important advanced industries to China.

ITIF argues the United States needs a comprehensive national strategy for motor vehicle competitiveness and recommends the following:

- **Build federal capacity for auto competitiveness.** Congress should establish an Advanced Program Office at the National Institute of Standards and Technology to assess the competitiveness of the U.S. motor vehicle sector, issue a biannual competitiveness report, collect better industry data, and manage a $5 billion automotive innovation package for research at U.S. universities and research institutions.
- **Lower production costs and modernize factories.** Policymakers should strengthen the Manufacturing Extension Partnership, increase its funding to $300 million annually, create a 25 percent tax credit for robotics and automation adoption, and ensure automakers face stable, predictable, nationally consistent regulations.
- **Accelerate product innovation.** Congress should triple the R&D tax credit, expand incentives for collaborative research, support workforce training, pass the SELF DRIVE Act to advance autonomous vehicle deployment, and launch a “BatteryShot Initiative” focused on next-generation battery technologies.
- **Strengthen suppliers, skills, and regional clusters.** The report calls for incentives to help 10,000 small and medium-sized manufacturers adopt smart manufacturing technologies, a Manufacturing Digitalization Investment Fund, stronger industry-focused education and training programs, and at least six dedicated regional automotive clusters funded at $150 million each over five years.
- **Protect the U.S. market from mercantilist competition.** ITIF supports continuing 100 percent tariffs on Chinese EVs, banning Chinese motor vehicle imports produced with more than de minimis mercantilist practices, prohibiting Chinese automakers such as BYD, Nio, and Xiaomi from opening U.S. manufacturing plants, and blocking Chinese acquisitions of U.S. automotive supply chain companies.
- **Modernize roadway infrastructure.** Congress should increase the gas tax in lieu of more stringent fuel economy mandates, prioritize intelligent transportation systems, improve vehicle-to-everything and vehicle-to-infrastructure deployment, and ensure new interstate highway construction includes EV charging infrastructure.

“No single policy will reverse decades of relative decline,” Ezell said. “But the United States can still rebuild auto competitiveness if it treats the sector as what it is: a strategic industry tied directly to national power. Imagine an America dependent on China for its cars, batteries, software, and vehicle supply chains. That is not acceptable. Congress and the administration should stop treating auto competitiveness as a legacy issue and start treating it as a national imperative.”

**Read the three-part series:**

1. [America Needs an Industrial Strategy for Motor Vehicles](https://itif.org/publications/2026/05/11/america-needs-an-industrial-strategy-for-motor-vehicles/)
2. [Explaining the Relative Competitive Decline of America’s Automotive Industry](https://itif.org/publications/2026/04/20/explaining-the-relative-competitive-decline-of-americas-automotive-industry/)
3. [Assessing the Evolving Global Competitiveness of the U.S. Auto Industry](https://itif.org/publications/2026/03/23/assessing-evolving-global-competitiveness-of-us-auto-industry/)

**Contact:** Austin Slater, [press@itif.org](mailto:press@itif.org)

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*Source: Information Technology & Innovation Foundation (ITIF)*
*URL: https://itif.org/publications/2026/05/11/us-auto-industry-needs-national-strategy-to-meet-china-challenge/*