Report Review — Council on Foreign Relations (February 2026)
Why this report matters now
China automotive revolution is reshaping the global auto industry as electricity-powered, internet-connected, and increasingly autonomous vehicles (ACE vehicles) scale rapidly. In this context, the report argues that the United States has leaned too heavily on protection (tariffs and regulation) to keep Chinese vehicles out, and that approach risks leaving the U.S. market isolated from global innovation and the benefits of the ICE-to-ACE transition.
Instead, the report’s core idea is straightforward: the United States should compete, not retreat, using temporary tariffs as breathing room while actively helping domestic producers reposition, coordinating with allies, and managing national security risks through data localization and supply-chain diversification.
Key takeaways from the analysis
1) The auto industry is changing fast—and China is ahead
The report describes a structural shift: the global market is moving from internal combustion engine (ICE) vehicles toward ACE vehicles, with China leading due to broad government support and faster consumer adoption. As a result, Chinese manufacturers have combined low cost and high quality and increased exports significantly, while other markets continue transitioning at different speeds.
2) Protection alone creates long-term costs
Tariffs and restrictions can reduce immediate exposure to Chinese vehicles and software risk. However, if maintained indefinitely, the report warns they can also push the United States toward divergence from international markets—meaning U.S. consumers and producers lose access to the transition’s environmental, economic, and technological benefits.
3) The United States has real stakes at home
The report frames the U.S. auto sector as strategically important: it supports millions of jobs, major exports, and over $1 trillion in output. Because the industry is too large to “sit out” a global shift, the report argues the U.S. government needs a strategy that shapes outcomes rather than simply blocks imports.
4) ACE vehicles create security issues that can’t be ignored
Connected and autonomous systems expand vulnerability: software and data could be used to disrupt vehicles or transportation systems, and the report highlights concerns about data misuse and cyberattack “attack surfaces.” It also stresses that China’s dominance across ACE supply chains (batteries, components, and critical inputs) adds leverage risks—especially as export restrictions emerge on key materials.
5) The recommended strategy: compete with conditional support + allied coordination
The report proposes an approach that blends industrial policy and managed trade:
- Conditional financial support to help domestic producers reposition for global competition (not just survive behind tariffs).
- Allied collaboration (Japan, South Korea, EU) to align trade and investment, scale innovation, and diversify supply chains.
- Competitive discipline by regulating imports and inward investment carefully (rather than blanket isolation).
- National security safeguards through data localization and secure/verified software and inputs.
As a reference point, the report compares today’s moment to how the U.S. responded to Japanese auto export pressure decades ago, managing trade tensions while encouraging adaptation and competitiveness.
Benefits, costs, and risks of ICE-to-ACE
From a U.S. policy perspective, the text organizes the transition into four buckets:
- Environment: better local air quality and reduced GHG emissions, with the caveat that electricity source matters.
- Security: less dependence on oil imports and lower fuel price volatility, but greater reliance on the electric grid and exposure to cyber risks and supply-chain dependence.
- Economic: participation in growing markets and lower operating/maintenance costs, alongside risks of displacement and corporate losses if incumbents fall behind.
- Consumer: lower long-run operating costs and potential safety/efficiency gains, but higher upfront costs and issues like range anxiety and charging inconvenience.
Bottom line
The report’s message is not “drop tariffs tomorrow.” It’s: use tariffs as temporary leverage while building the capacity to compete globally, otherwise the U.S. risks becoming a protected ICE-heavy island while the rest of the world standardizes around Chinese-led ACE ecosystems.
Reference
Hart, D. M. (2026, February). Compete, Don’t Retreat: A Smarter U.S. Response to China’s Automotive Revolution. Council on Foreign Relations. https://www.cfr.org/reports/