When it comes to dealing with cheaper foreign rivals, countries are faced with a difficult decision: wall them out or let them in. The United States chose to wall out Chinese electric vehicles with a 100% import duty that took effect in September 2024. However, this approach has not been without its costs, as American car manufacturers are now struggling to compete in markets where Chinese vehicles are not subject to the same restrictions.

On the other hand, Europe, particularly Spain, has taken a different approach. A Spanish government report obtained by Bloomberg reveals that Madrid is planning to allow Chinese car manufacturers to build plants in the country, bringing in Chinese workers to do so. This move is seen as a bid to keep the Spanish car industry running and to learn from Chinese competitors.

Spain’s car industry is a significant contributor to the country’s economy, accounting for around 10% of gross domestic product and 9% of national employment. The sector is also a major employer, with many workers relying on it for their livelihoods. When a Spanish plant goes idle, it’s not just a sector news story – it’s a national economic event.

In contrast, the US has been slow to adapt to the changing landscape of the global car market. While the tariff on Chinese electric vehicles may have protected American car manufacturers in the short term, it has not addressed the underlying issue of how they can compete with cheaper Chinese imports in other markets. As Ford chief executive Jim Farley has pointed out, Chinese export capacity is a ‘wild card’ for established automakers worldwide, and protection at home does nothing to close the cost gap.

Spain, on the other hand, has taken a more pragmatic approach. By allowing Chinese car manufacturers to build plants in the country, Madrid is giving itself a chance to learn from its competitors and to adapt to the changing market conditions. The report highlights three joint ventures between Spanish and Chinese companies, including a 4.1 billion euro battery plant jointly owned by CATL and Stellantis, which will rely on ‘expatriate workers’ through the fourth quarter of 2028.

The key to Spain’s success will be in its ability to transfer underlying technology to Spanish ownership and to localize its supply chain. While the report is less specific about these goals, it’s clear that Madrid is committed to giving itself the best chance of success in the face of increasing competition from Chinese car manufacturers.

As the global car market continues to evolve, it’s clear that countries like Spain will need to adapt quickly to stay ahead. By taking a more pragmatic approach to dealing with Chinese car imports, Madrid is giving itself a chance to learn from its competitors and to thrive in a rapidly changing market.