The global trade landscape is undergoing profound changes, driven by the re-emergence of tariffs with Trump’s first administration in 2018 and the acceleration of the green transition. Among the industries affected is the electric vehicle (EV) sector, where traditional market leaders such as the US and EU face increasing competition from China. While economic blocs are resorting to tariffs in an attempt to reduce their dependency on China and strengthen their domestic industries, their broader economic and environmental consequences are unknown. This study investigates the economic and climate change consequences of increased tariffs imposed on EVs and their associated supply chains in the year 2022, using a Computable General Equilibrium (CGE) model to simulate trade scenarios involving the EU, US, and China.

The findings reveal while tariffs can reduce dependence on Chinese EVs and support domestic industries of countries imposing tariffs, they also slow EV adoption and undermine climate goals. In scenarios where all three regions impose 20% tariffs on EV imports, global EV adoption drops by 0.87%. This slowdown of shift to EVs from internal combustion engine (ICE) vehicles leads to over 1.85 Mt CO2-eq. of additional emissions over the lifetime of vehicles. Over half of these additional emissions are due to the 2.5% drop in EV adoption in EU. The trade diversion away from China leads to China’s market share in EU and US declining by over 70% and 18%, respectively. When tariffs are expanded to cover other inputs to the EV industry like batteries, critical minerals, and electronics, the EV sector is more adversely affected, resulting in a 1.2% decline in global EV adoption and a rise in associated emissions to 2.5 Mt CO₂-eq.

A complementary game-theoretic analysis of these scenarios helps explain the real-world tendencies of major economic blocs to impose tariffs. The results suggest that the United States is incentivized to impose tariffs as a means of strengthening its domestic EV industry while mitigating losses in EV sales. China, in turn, is motivated to retaliate in order to reduce the negative repercussions for its EV industry and to preserve its market share. By contrast, the European Union faces a more complex dilemma: although tariffs would support its domestic EV industry, they would also exacerbate the decline in EV adoption, making non-retaliation the more favourable strategy from a climate perspective.

This study offers policymakers critical insights into the economic and climate change impacts of tariffs on the EV industry and its supply chains. By quantitatively evaluating trade scenarios, it brings out the trade-offs between strengthening domestic industries and climate goals and helps anticipate its impact on other regions. The findings support more holistic decision-making by emphasizing the importance of integrating climate considerations into trade policy to ensure a balanced and effective EV transition.

The global wicked problem of the climate crisis has drawn significant interest and attention over recent years from world governments, industry leaders and researchers. In a collaborative effort to tackle this problem while maintaining economic and social development, in 2015 the United Nations developed the Sustainable Development Goals (SDGs) and countries globally committed to this initiative (United Nations Development Programme, 2024). The transport sector forms a crucial component of infrastructural development while also being a significant contributor to greenhouse gas emissions, and a sizeable share of these emissions are attributed to the use of Internal Combustion Engine Vehicles (ICEVs), dependent on petroleum fuels. The globally recognised solution to replace ICEVs as of 2024 is through electrification of the transport sector, facilitated by the use of Electric Vehicles (EVs). Given the importance and significance of this relatively emerging technology, countries across the globe have formulated various strategies and made major efforts to enhance their country’s competitive positioning in the international trade of EVs.

Enhancing competitiveness in international markets in the EV sector is a viable method for nations to improve their energy security and independence from other potentially rival countries for their energy requirements. For instance, in the aftermath of the Russia-Ukraine conflict, many countries minimized ties with Russian products, despite Russia being the world’s largest exporter of oil to global markets, further stressing upon the need for countries to strengthen their positions in electric mobility and EV trade, since the incumbent car companies that built their reputations on ICE vehicles have also started updating their vehicle line-ups and incorporating EVs due to the constantly evolving nature of the transport sector. Moreover, the government support through industrial policy subsidy measures directed towards their domestic industries to bolster EV production also communicates concerns about employment for incumbent ICE vehicle producers, as with the growth of adoption in any emerging technology, or EVs in this case. Hence, the continuously evolving trade competitiveness dynamics require focused research to support policymakers in recognising the factors that may have a positive or negative impact on EV export performance. This can further facilitate the introduction of effective policy measures to improve international competitiveness in a sector such as EVs, which is of paramount importance in the widespread uptake of Net-Zero technologies.

There is an abundance of research analysing different aspects of the adoption and uptake of EVs in global, national and regional settings. Additionally, the extant literature also contains works that analyse the determinants of international competitiveness in established industries such as agriculture, forestry and the automotive sector. However, there is a lack of research on the international competitiveness of countries in the EV sector. Hence, the primary objective of this study was to fill this knowledge gap by providing a cross-country, empirical analysis of the determinants of international competitiveness in the EV sector, such as technological innovation, cost-competitiveness, green industrial policy measures and endowments in critical metals required for EV manufacturing. The following main research question guided this study: Which factors are most strongly associated with the export competitiveness of the electric vehicle industry across countries?...