The US Department of Commerce (DOC) recently proposed a ban on automotive software and hardware technology and equipment from China and Russia entering the US market. Sino Auto Insights commented that the Biden administration's move could close a significant loophole in previous tariff measures on Chinese electric vehicles (EVs).
The proposal, suggested by the Bureau of Industry and Security (BIS) under the DOC, aims to prohibit the import and sale of vehicle connectivity systems (VCS) and autonomous driving system (ADS) software and hardware produced in China or Russia. It also seeks to prevent the use of these technologies in any vehicle operating within the United States.
In May, the US government raised tariffs on imported Chinese EVs to 102.5%. However, Chinese manufacturers could still avoid these tariffs by building factories in Mexico and entering the US market through the United States-Mexico-Canada Agreement (USMCA). The new DOC rules would maintain USMCA terms while restricting vehicles with Chinese technology and equipment from entering the US market.
According to reports from Bloomberg and The Register, the primary purpose of this proposed ban is to address concerns that China or Russia could use these technologies for espionage in the United States. The technologies in question include computer systems that control vehicle movement, monitoring devices that collect sensitive data from drivers and passengers, as well as cameras and sensors used in autonomous driving systems, which could be exploited by hostile nations through vehicle connectivity features.
In February 2024, the Biden administration ordered an investigation into Chinese-made vehicles exported to the United States due to concerns that these vehicles might be used to gather data on US road locations and driving routes, or even be remotely controlled. DOC Secretary Gina Raimondo stated that if software from hostile nations can monitor American drivers or remotely control vehicles, it poses a threat to US citizens' privacy and national security.
White House National Security Advisor Jake Sullivan added that there is evidence China has embedded malware in US critical infrastructure. With the increasing presence of Chinese-made vehicles on US roads, the potential damage and threats to national security will only grow.
Although Chinese-brand vehicles are currently rare on US roads, some American car manufacturers produce vehicles in China and then export them to the United States. Given that most modern vehicles are equipped with connectivity and data-sharing features, the new DOC proposal would effectively ban the import of all vehicles manufactured in China.
This move could force American carmakers like General Motors (GM) and Ford to stop selling vehicles produced in China and imported to the United States. The Alliance for Automotive Innovation believes that some automakers may need more time to comply with the new regulations and may need to find alternative suppliers. However, the DOC stated that automakers will have the option to apply for special exemptions.
The DOC's recent proposal also responds to a report submitted by the US Trade Representative (USTR) to Congress in July. The report argued that China is using government subsidies and other non-market policies to expand the production of EVs and related components in North America, disrupting supply chains and depriving American workers and businesses of fair competition.
However, research firm Automobility raised doubts about the DOC's proposal, noting that Chinese software is already widely used in other consumer products, from televisions to the Internet of Things (IoT) and smartphones. The firm argued that the rationale for reducing risks from Chinese software lacks clear boundaries and is not convincing.
Automobility also warned that continued unilateral bans by the United States would only escalate already tense geopolitical relations between China and the US and could provoke retaliation, potentially affecting American businesses operating in China.
