A defense of competitive markets, and a warning about what happens when protection, rent-seeking and offshoring take competition’s place
From The Craig Bushon Show Media Team
The debate over Chinese automobiles usually gets framed around a narrow question, which is whether Americans should eventually be allowed to buy a $25,000 or $30,000 vehicle built by a Chinese company. The larger question deserves more attention. China has become capable of building technologically advanced cars far more cheaply than most Western manufacturers, while the American system that once set the world standard for industrial efficiency has become expensive by comparison. How that happened says as much about the United States as it does about Beijing.
The convenient explanation is that China cheats, and there is solid evidence that the Chinese government has poured enormous sums into its automotive and electric-vehicle industries. We document that below. If the conversation ends there, however, America gets to skip a harder look at itself. While China was building factories, battery plants, supplier networks and infrastructure, the United States spent decades moving portions of its manufacturing base to lower-cost countries, watching industries consolidate and allowing rules to accumulate that protect established business models from new ones. Too often we measured economic success by what was best for an individual corporation rather than by what strengthened the country’s industrial capacity, and that is where the phrase in this headline comes from.
What We Mean by Crony Capitalism
Because the term is easy to misread, we want to define it before going further. Profit is essential to capitalism, and we are not suggesting that making money is a problem. We are not claiming that every automaker, dealer, politician or regulator is corrupt, and we are not alleging a nationwide scheme of bribery. Crony capitalism, as we use it here, describes what can happen when a market economy is gradually distorted by rent-seeking, regulatory protection, political influence and barriers to entry that shield incumbent businesses from the full force of competition. Rent-seeking is the economist’s term for trying to increase profits by getting government to tilt the rules in a business’s favor, whether through a legal barrier that keeps competitors out, a special exemption or a protected market, rather than by offering customers a better or cheaper product. The money spent on that effort creates no new value for the economy, and the cost usually lands on consumers in the form of higher prices and fewer choices. The companies remain privately owned, investors still invest and businesses still earn profits, but competition, the disciplining force that makes capitalism work for ordinary people, grows weaker.
The lesson we draw from Chinese automobiles is that China has found and exploited the places where America stopped practicing competitive capitalism with enough discipline. That is a very different claim from saying communism has beaten capitalism, and the evidence below supports the first and contradicts the second.
China’s Cost Advantage Is Real
America cannot afford to deny that China has become very good at building cars. The International Energy Agency (IEA), in its 2025 special report What Next for the Global Car Industry, estimates that producing a small SUV in China is more than 30% cheaper than in advanced economies, and that the gap holds for both battery-electric and gasoline-powered versions. The IEA identifies large-scale manufacturing and vertical integration as the main reasons, with lower energy and labor costs contributing to a lesser degree. That finding undercuts the explanation Americans have leaned on for years, because the advantage the IEA describes comes mostly from an industrial system rather than from cheap wages.
The same report found that China’s car production more than doubled between 2010 and 2024, that China now holds about 40% of global car manufacturing capacity compared with roughly 15% each for Europe and North America, and that China became the world’s largest car exporter in 2024. The IEA’s Global EV Outlook 2026 puts China’s share of global electric-car production at nearly 75% in 2025.
Batteries show the gap even more clearly. The IEA estimates that average battery cell prices in China are more than 30% lower than in Europe and more than 20% lower than in the United States, and it attributes that advantage to economies of scale, manufacturing experience, access to critical-mineral supply chains and innovation in lower-cost lithium iron phosphate battery chemistry. The degree of industrial clustering is striking. According to the IEA, Detroit and Nagoya each have one battery factory, while Shanghai has 26. China built the supplier base that sits beneath its car plants, including cathode and anode producers, mineral processors, electronics makers and logistics networks, and it located much of that base close together.
China Did Not Build It Without Government Help
The other half of the story matters just as much, because China’s auto industry did not grow up in anything resembling a free market. The Center for Strategic and International Studies (CSIS), a Washington-based policy research organization, calculated in June 2024 that Chinese government support for the electric-vehicle sector totaled $230.9 billion from 2009 through 2023. That estimate, published by CSIS scholar Scott Kennedy, covers buyer rebates, exemption from China’s 10% vehicle sales tax, infrastructure funding, research and development programs and government vehicle purchases. CSIS describes the figure as incomplete, since it leaves out local government investment in automakers and subsidies for miners, materials processors, chemical producers and battery manufacturers elsewhere in the supply chain.
That breadth matters because many Americans picture subsidies as Beijing writing BYD a check for every car that rolls off the line. The reality is wider and harder to measure. An International Monetary Fund (IMF) working paper published in August 2025 by economists Daniel Garcia-Macia, Siddharth Kothari and Yifan Tao estimated that the equivalent fiscal cost of Chinese industrial policy, delivered through cash subsidies, tax benefits, subsidized credit and subsidized land, runs about 4% of GDP per year. That figure covers favored sectors across the economy rather than automobiles alone, and the authors note that the benefits flow to private firms as well as state-owned ones. It would therefore be inaccurate to say simply that the Chinese government owns the car companies. Some are state-controlled and some are not, but both kinds operate inside an industrial system the state has deliberately shaped.
How Subsidized Scale Became Genuine Efficiency
This is where America can make a costly mistake, which is to conclude that because China subsidized its industry, the resulting advantage must be artificial. Government support helped build the ecosystem, but once it existed, scale began producing efficiencies of its own. A manufacturer that builds batteries by the million learns from every production run, its engineers find faster processes, scrap rates fall, suppliers improve and move closer, and fixed costs get spread across more units. When a rival figures out how to make a similar battery for less, the first company has to respond, and the cycle repeats. The IEA’s analysis is consistent with that picture, attributing much of China’s battery cost advantage to scale, experience and manufacturing efficiency.
Our conclusion, which is an inference from that evidence rather than a finding any single study states, is that China did more than subsidize cheap cars. It subsidized an industrial ecosystem that then learned how to build cars cheaply. A tariff can keep those cars out of the American market, but it cannot erase the manufacturing knowledge, supplier relationships and infrastructure that stay in China even as individual subsidy programs wind down.
The Economic Irony Inside China
China is governed by the Chinese Communist Party and its economy is heavily directed by the state, yet its automakers face brutal competition at home. CSIS counted roughly 200 electric-vehicle producers in China and described a bitter domestic price war. The IEA reports that China’s electric-car manufacturing capacity is about twice its domestic production, and that this surplus capacity and fierce competition have been hurting profit margins to the point that consolidating the industry has become a government priority.
That excess capacity reflects a real weakness in China’s system. The IMF paper estimates that the misallocation of capital and labor caused by industrial policy lowers China’s aggregate total factor productivity by about 1.2%, and it finds that subsidies tend to push production above efficient levels. We are not arguing that China’s economic model is superior, because the evidence points the other way. Our argument is narrower. China used state industrial strategy to build enormous scale and then allowed ferocious competition inside some of those industries, while the United States let political protection and weakened competition creep into parts of an economy that still calls itself capitalist.
What Crony Capitalism Looks Like in Practice
Imagine an entrepreneur finds a cheaper way to sell cars. Under competitive capitalism the existing industry has to respond. Dealers might improve their service, manufacturers might cut prices, a new distribution model might take hold or consumers might decide they prefer the system they already have, and the market sorts out the winner. Now suppose established businesses persuade lawmakers to prohibit or severely restrict the newcomer’s model. At that point the incumbent is relying partly on government protection rather than on competition alone, and capitalism has begun drifting toward rent-seeking.
America’s auto retail system offers a real example, and we raise it knowing that dealerships serve legitimate purposes. Many state franchise laws restrict or prohibit manufacturers from selling vehicles directly to consumers, although the rules and exceptions vary considerably from state to state. In May 2009, Gerald Bodisch, an economist in the Justice Department’s Antitrust Division, published a competition advocacy paper arguing that eliminating those bans would give automakers the opportunity to reduce inventories and distribution costs by better matching production with what customers want. The paper states that its views are the author’s alone and do not represent the Justice Department. In 2010, economists Francine Lafontaine and Fiona Scott Morton wrote in the Journal of Economic Perspectives that because states collect roughly 20% of their sales tax revenue from auto dealers, dealerships and their associations have been able to exert influence over local legislatures.
None of this proves the franchise dealer system should disappear. Dealers handle service, warranty work, trade-ins and local employment, and plenty of buyers value those relationships. The capitalist position is simply that competing business models should have to prove their worth to customers, and that government should be very cautious about granting one private business model legal protection from another. The crony capitalism we are describing is a system in which political influence can sometimes accomplish what competition could not, and it has nothing to do with envelopes of cash or accusations against individual dealers.
Mexico and the Question of Where the Savings Went
For decades American automakers expanded production in Mexico, and lower labor costs were a major reason. The size of that gap is hard to overstate. Economists Susan Helper of Case Western Reserve University and Todd Tucker of the Roosevelt Institute, writing in a March 2026 Brookings chapter and citing the U.S. International Trade Commission’s 2025 report on USMCA auto rules, put the average hourly wage of automotive workers in Mexico in 2024 at $5.66, compared with $30.86 in the United States, a difference of more than five to one. The gap was wide enough that when NAFTA was renegotiated into the United States-Mexico-Canada Agreement (USMCA) in 2020, the new agreement required that 40% to 45% of a qualifying vehicle’s value be produced by workers earning at least $16 per hour. Economist Fausto Hernández Trillo, in a separate chapter of the same Brookings report, describes that rule as designed specifically to discourage outsourcing to Mexico. Helper and Tucker conclude that it did little to raise Mexican wages, because automakers largely met the requirement through their higher-paid American and Canadian workers. Seeking lower costs is ordinary business behavior, and there is nothing wrong with it on its own terms.
Americans were also told that globalization would bring a broader benefit in the form of lower prices, which makes it fair to ask what happened to the savings. Car prices certainly did not fall. Kelley Blue Book reported on September 10, 2026, that the average transaction price of a new vehicle in the United States was $50,089 in August 2026, up 1.9% from a year earlier and just below the record $50,612 set in December 2025. Today’s vehicles carry far more safety equipment, electronics, emissions technology and connectivity than cars of the 1990s, and decades of inflation have changed the value of the dollar, so no one should expect a vehicle built partly with lower-cost labor to cost half as much. The legitimate question is whether competition pushed enough of the productivity gains from globalization through to the people buying the cars. We are not aware of a study that measures that pass-through directly for the U.S. auto market, so we offer the question as an inference worth examining rather than as a documented conclusion.
Basic economics explains why the answer may be less than Americans were promised. Suppose a company makes a product for $20 and sells it for $40, then finds a way to make it for $15. Nothing obligates that company to lower its price, and as long as customers keep paying $40, it may well keep charging $40. What pushes prices down is a competitor who makes the same product for $14 and sells it for $35, followed by another who gets to $12 and charges $32. Lower production costs create the opportunity for lower prices, and competition supplies the pressure that turns that opportunity into actual savings. When industries consolidate, barriers to entry rise or regulations protect incumbents, that pressure weakens and less of the productivity gain reaches the consumer. The IEA made a related observation in its 2025 report, noting that differences in car purchase prices between regions are larger than differences in manufacturing costs, partly because of manufacturers’ pricing strategies, profit margins and subsidies.
The Jobs Side of the Ledger
Globalization also carried costs in employment, though the full picture is more complicated than the political shorthand suggests. A U.S. International Trade Commission (USITC) staff working paper found that employment in America’s combined motor vehicle, body and parts manufacturing industries fell 22.8% between 1997 and 2014, from 932,265 workers to 719,983. The same analysis found that rising labor productivity and increased imports both contributed to the decline, and that productivity gains were associated with the larger share of the losses. Automation lets fewer workers build more vehicles, and higher productivity is generally good for an economy.
The Mexico side of that story comes with important counterevidence. In his Brookings chapter, Hernández Trillo argues that the decline in U.S. manufacturing employment stems primarily from the so-called China Shock rather than from Mexican competition, and that because the North American auto supply chain is so integrated, American and Mexican workers often function as complements rather than direct competitors. He also cites research by economists Lorenzo Caliendo and Fernando Parro finding that NAFTA’s tariff reductions produced a small welfare gain for the United States and slight real-wage increases in all three member countries. Those findings belong alongside the job losses, because both are part of the record.
When factory work does leave a community, the effects extend beyond the worker who lost the job. A well-paid manufacturing employee spends money on groceries, vehicles, home repairs, restaurants and local services, and when enough of those paychecks disappear, suppliers, retailers and local tax collections feel it. The federal Bureau of Economic Analysis built its Regional Input-Output Modeling System, known as RIMS II, to estimate how an initial change in economic activity ripples through a regional economy’s output, employment and earnings. Multipliers vary widely by industry and region, so it would be a misuse of the tool to claim that every factory job supports some fixed number of other jobs, but the principle that productive work carries value beyond a single payroll is sound. Industrial expertise that leaves the country is also expensive and slow to rebuild.
Corporate Savings Versus National Costs
That leads to a distinction American economic policy has too often ignored. Suppose a corporation can save $1 billion by moving production abroad. For that company the decision can be entirely rational, since costs fall, profits rise and executives are responding to the incentives in front of them. The national calculation is different, because it has to account for the domestic jobs and supplier contracts lost, the wage income and tax revenue that disappear, any added burden on public programs, greater dependence on foreign supply chains and the manufacturing knowledge that leaves with the factory. It also has to ask whether consumers received enough of the savings to offset those costs. A $1 billion efficiency on a corporate income statement may amount to far less for the country as a whole, and recognizing that is a matter of accounting rather than hostility to business. What is efficient for a single corporation is not automatically efficient for a nation, and policy should be written with that in mind.
Two Different Strategies
For decades many Western companies asked where they could make a particular product more cheaply, and the answer took them to Mexico, China, Vietnam, Eastern Europe or wherever the numbers worked. China pursued a different goal, which was to become the place where an entire industrial system could produce more cheaply, combining relatively low labor costs with ports, infrastructure, dense supplier networks, battery production, mineral processing and a large engineering workforce. American firms often optimized their individual supply chains while China worked to build national industrial clusters. That comparison is our interpretation of the pattern the IEA and CSIS findings describe, and it does not make China capitalist, the Communist Party wise or an authoritarian economic model worth copying. It does mean America would be foolish not to study what worked.
The Answer Is More Genuine Capitalism
The right response to China is a stronger dose of competitive capitalism. That means easier entry for startups, less regulatory protection for incumbents and fewer opportunities for politically connected businesses to write the rules their competitors must follow. It also means faster permitting, competitively priced energy, domestic mineral production and processing, and serious investment in productive capacity, with government policy aimed at building competitive markets instead of permanently protected ones. America’s economic strength has always come from millions of people deciding what to build, where to invest and what to buy, and it erodes whenever Washington starts deciding which corporation deserves to win.
Profit is part of that system, and there is nothing shameful about it, since profit rewards risk and draws the capital that lets businesses grow. What makes capitalism work is the way high profits attract competitors who want a share of them, and that competition forces everyone to innovate and cut costs until productivity gains finally reach consumers. When government shields an incumbent from that process, capitalism gets weaker, which is exactly why we use the phrase crony capitalism.
China’s own record reinforces the case for markets. Government-directed investment can produce waste and excess capacity, keep inefficient firms alive and steer resources toward political priorities, and the IMF’s research puts measurable costs on some of that. The better reading of the evidence is that China identified weaknesses inside Western capitalism and exploited them while building the capacity to compete, which is a very different conclusion from saying state capitalism is superior.
Tariffs Can Buy Time
Tariffs and national-security restrictions may sometimes be necessary, and protecting strategic industries can make sense, but tariffs cannot substitute for competitiveness. To take a hypothetical, if China can build a vehicle for $28,000 that costs an American company $40,000 to build, a tariff on the Chinese vehicle may keep it from undercutting the American one, but the American vehicle still costs $40,000 to make. A tariff buys time, and what matters is how that time gets used. If America uses it to invest, simplify regulation, welcome new competitors, strengthen domestic supply chains, produce its own energy and minerals and raise productivity, the protection can end up strengthening capitalism. If America uses it mainly to preserve an expensive status quo, it risks producing more of the crony capitalism this article describes.
The Real Warning From China’s Cheap Cars
Americans should ask whether Chinese subsidies create unfair competition, and the evidence says they do. We should also examine the national-security questions raised by Chinese connected vehicles, and we should take tariffs, supply-chain dependence and domestic manufacturing seriously. This story is also about what America allowed to happen at home. For decades we let corporations search the world for cheaper production on the assumption that corporate efficiency would translate automatically into national prosperity, and sometimes it did while other times it did not. Along the way manufacturing communities declined, industries consolidated, regulations came to protect certain incumbent business models and private profitability was too often mistaken for national economic strength.
China did not prove that communism works better than capitalism. Its cheap cars may instead be showing what happens when American capitalism grows comfortable and politically protected. The United States does not need to abandon capitalism to answer China, but it does need to restore the competitive pressure that once made American industry so hard to beat, including the healthy fear among established companies that someone, somewhere, is figuring out how to do their job better and for less. Crony capitalism tends to protect yesterday’s winners while competitive capitalism is what produces tomorrow’s, and if America intends to win the next industrial era, it had better keep that difference in view.
Disclaimer: This commentary is provided for informational, educational and editorial purposes and reflects analysis and opinion based on publicly available government data, research and reporting. References to “crony capitalism” describe economic concepts including rent-seeking, regulatory capture, barriers to competition and incumbent protection; the term is not intended as an allegation of bribery, criminal corruption or unlawful conduct by any specific company, dealership, trade organization, public official or individual. Economic outcomes involving trade, globalization, employment, automation, industrial policy and vehicle pricing have multiple causes, and no single policy or country should be interpreted as solely responsible for the trends discussed. Readers are encouraged to examine the cited original research and competing economic analyses when forming their own conclusions.
Sources
- International Energy Agency, What Next for the Global Car Industry (2025): https://www.iea.org/reports/what-next-for-the-global-car-industry
- International Energy Agency, Global EV Outlook 2026, executive summary: https://www.iea.org/reports/global-ev-outlook-2026/executive-summary
- Scott Kennedy, “The Chinese EV Dilemma: Subsidized Yet Striking,” CSIS (June 2024): https://www.csis.org/blogs/trustee-china-hand/chinese-ev-dilemma-subsidized-yet-striking
- Daniel Garcia-Macia, Siddharth Kothari and Yifan Tao, “Industrial Policy in China: Quantification and Impact on Misallocation,” IMF Working Paper 2025/155 (August 2025): https://www.imf.org/en/publications/wp/issues/2025/08/07/industrial-policy-in-china-quantification-and-impact-on-misallocation-568888
- Gerald R. Bodisch, “Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers,” U.S. Department of Justice Antitrust Division, EAG 09-1 CA (May 2009): https://www.justice.gov/atr/public/eag/246374.pdf
- Francine Lafontaine and Fiona Scott Morton, “Markets: State Franchise Laws, Dealer Terminations, and the Auto Crisis,” Journal of Economic Perspectives 24(3), 2010: https://www.aeaweb.org/articles?id=10.1257%2Fjep.24.3.233
- Fausto Hernández Trillo, “Wages and productivity in Mexico under USMCA,” Brookings (March 2026): https://www.brookings.edu/articles/wages-and-productivity-in-mexico-under-usmca/
- Susan Helper and Todd Tucker, “Challenges and opportunities for the North American auto industry in the 2026 USMCA renegotiation,” Brookings (March 2026): https://www.brookings.edu/articles/challenges-and-opportunities-for-the-north-american-auto-industry-in-the-2026-usmca-renegotiation/
- Kelley Blue Book / Cox Automotive, August 2026 average transaction price report (September 10, 2026): https://www.prnewswire.com/news-releases/kelley-blue-book-report-average-new-vehicle-transaction-price-moves-back-above-50-000-in-august-302875631.html
- U.S. International Trade Commission, “Analysis of Employment Changes Over Time in the U.S. Motor Vehicle Industry,” Economics Working Paper: https://www.usitc.gov/publications/332/employment_changes.pdf
