It Isn’t That Simple: Why “Free Trade” Needs A New Playbook

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If you have been reading the recent takes on the “legacy EV retreat,” including at least one piece published here last week, you have likely seen the narrative that Detroit is just lazy, lobby-happy, and getting exactly what it deserves for dragging its feet. The argument generally goes that if we just opened the gates to Chinese competition, the market would naturally fix our laggard automakers through the sheer force of capitalism.

I’d love to be able to agree and help whip them into shape, but as someone who spends a lot of time analyzing the intersection of technology and transport, I am here to tell you that it’s just not that simple. We all want the benefits of a free market (something I generally believe in). We want better tech, lower prices, and faster innovation.

But, to actually reap those benefits, we cannot just lower the gates before considering how distorted the market currently is. We need a comprehensive basket of policies that enables competition instead of accidentally extinguishing it. To open the floodgates now would mean dropping US automakers into the deep end of a pool that has been rigged from the bottom up with subsidies and supports on both sides of the Pacific.

The Asymmetric Starting Line

The free trade purists love to say the market should decide the winners and losers. But, to conclude that a simple opening of the market would achieve that means ignoring twenty years of aggressive and state-led industrial policy that predetermined the odds.

Chinese EV dominance did not happen because they just worked harder or had better CEOs in the automotive industry. It happened because the Chinese state subsidized the entire vertical stack of the industry. They did not just fund the car assembly. They funded the atoms that get fed into the machine.

According to the Center for Strategic and International Studies (CSIS), China spent roughly $230 billion on EV subsidies and direct support between 2009 and 2023 alone. This figure includes buyer rebates, sales tax exemptions, and massive infrastructure funding that allowed companies like BYD and CATL to achieve scale before they ever had to turn a real profit. When your competitor has their R&D and raw materials pre-paid by a government, you are not competing in a free market. You are fighting an asymmetric war.

While recent years saw these subsidies reduced or eliminated, the effect of those subsidies lives on in a mature market that the United States just doesn’t have.

To fix this, we need policies that match that scale. We need production tax credits that allow US firms to build a domestic supply chain that is not starting twenty miles behind the starting line. Expecting legacy automakers to survive without this support is not capitalism. It is just bad math.

The Fossil Fuel Life Vest

The second major distortion we ignore is the massive safety net we provide to internal combustion engines. We demand that EVs compete on price and convenience while the incumbent fuel source wears a taxpayer-funded life vest.

Gas and diesel enjoy massive and often hidden subsidies. These range from direct tax breaks for oil exploration to the unpriced costs of pollution (not only in burning the stuff, but in drilling for it) and the military protection of global oil supply lines. The International Monetary Fund (IMF) estimated that global fossil fuel subsidies surged to a record $7 trillion in 2022. That is roughly 7.1% of global GDP spent propping up the very technology we are trying to replace.

When we keep the price of fossil fuels artificially low, we create a market distortion that favors the old way and prevents domestic manufacturers from really being able to compete in the EV market.

A real policy basket must include phasing out these fossil fuel crutches.

We must also treat the EV charging grid as a national necessity to make up for decades of anti-renewables policymaking. It should be funded and protected with the same vigor we applied to the Interstate Highway System in the last century (a time today’s conservatives look back to as the time America was great). You cannot expect a new industry to swim when the water is pumped full of subsidies for the competition.

The Material Monopoly

We often get distracted by political paranoia about software, spyware, or fears that our cars are listening to us. While cybersecurity is a legitimate concern, the true third rail of this industry is the supply chain. It is about atoms and inventory risk.

China currently refines the vast majority of the world’s battery-grade graphite and lithium. We have already seen how this monopoly can be weaponized. In late 2023, China imposed export controls on graphite that caused shipments to the United States to drop to zero in December of that year. This was something the Chinese government had done to other neighbors, and with similar effects (they, too, caved).

This was a warning shot. It showed us that “free trade” is an illusion when one of the players holds the keys to the warehouse. A retreat by legacy automakers is often a rational reaction to this risk. Why build a billion-dollar battery plant if your supply of anode material can be cut off by a diplomatic spat, especially when we have a manchild-in-chief like Donald Trump in charge?

To have a functioning free market, you need a secure supply. That means we need a Strategic Critical Minerals Reserve similar to our petroleum reserve. We also need serious permitting reform. If it takes fifteen years to permit a mine in Nevada but two years for a state-backed rival in Asia, our market is paralyzed by our own red tape.

We cannot buy our way out of this with tariffs alone. We have to dig our way out.

When Economic Theories Melt

Finally, we have to admit that the rules of economics are changing beneath our feet. Neoliberalism and mercantilism (along with most other economic “-isms”) are melting under the pressure of automation.

We are living through the death of the Scarcity Era. Every major school of economics is built on the foundation that human labor and resources are fundamentally limited. Yet, despite 50 years of wage stagnation under existing automation, we stubbornly cling to 19th century philosophies as if we are fundamentalists reading a religious text.

But, as AI and robotics drive the labor cost of a vehicle toward zero, the old arguments about comparative advantage are dying.

In this new world, the old trade wars are nonsensical. The new scarcity is not workers. It is energy and raw materials. If we follow the logic of “just let them compete” without securing our own atoms, we are essentially saying the winner is whoever can build the biggest automated machine first using the most subsidized minerals. That’s not free market economics—it’s the most efficient way to favoring state planning.

The retreat we are seeing from legacy auto is not just a failure of will. It is a rational response to a rigged and distorted market. It’s a normal reaction to abnormal circumstances. If we want the EV transition to work, we do not need fewer rules. We need a smarter basket of them that acknowledges where we are at and aims to eliminate the distortions.

We need to secure the minerals and end the fossil fuel favoritism before we can even consider what we’re doing to be “free market economics.”

Featured image by NASA.