If China could sell it's cars here, it would spur American automakers to innovate, no? Government protectionism causes complacency

It's a balance. If a country is investing severely in a specific industry you can either tax them out of your swamp, counter invest in your industry or, realistically, do a mix.

It'd be difficult to compete with companies receiving large gov assistance without gov assistance and I find taxing them slightly safer than making it rain on specific people/companies.

It definitely worked in the past with Japanese cars.