Trade dispute between the USA and China USA plans to ban Chinese software and hardware in connected vehicles

Related Vendors

FAULHABER Drive Systems

dataTec AG

Wuxi InfiMotion Technology Co., Ltd.

September 23, the U.S. Department of Commerce submitted a legislative proposal that calls for banning key technologies from China for connected vehicles. Effectively, this would mean the import of almost all vehicles manufactured in China would be banned—and also pose significant challenges for European car manufacturers.

In the longstanding technology trade dispute, the next level of escalation is emerging: The US government has announced a complete ban on the import of key technologies from Chinese and Russian production for connected and autonomous vehicles by no later than 2030. The US Department of Commerce introduced the corresponding legislative proposal on September 23, 2024.

Software bans by 2027, hardware components by 2030

Accordingly, by the year 2027, connected and autonomous vehicles approved for the American market will no longer contain any software originating from China or Russia. By the vehicle model year 2030, this ban will also extend to certain hardware technologies necessary for connectivity and ADAS (Advanced Driver-Assistance Systems). Depending on the vehicle manufacturers' production cycle and the duration of the approval process, effectively from the year 2029, none of the affected components will be installed if the vehicle is to be approved for the US market.

The restrictions are extensive and include systems and components that connect the vehicle to the outside world, including Bluetooth, cellular, satellite, and Wi-Fi modules. Additionally, testing autonomous vehicles that use corresponding technologies from China will be completely prohibited on American roads.

Consequently, the United States is significantly intensifying its ongoing restrictions on vehicles, software, and components manufactured in China. At the beginning of this month, the Biden administration decided on steep tariff increases on Chinese imports, including a [100 percent tariff on electric vehicles as well as new increases on batteries for electric vehicles and key minerals].

Concerns regarding espionage and disruptions of critical infrastructure

So far, the US government has only published a notice of proposed rulemaking (NPRM). If this is enacted into law as proposed, it would prohibit the sale or import of connected vehicles containing the mentioned technologies, as well as the import of certain components from "countries of concern." This primarily refers to China and Russia, as well as "entities with sufficient connections to the People's Republic of China or Russia." While this regulation would effectively ban Chinese vehicles completely from American roads, it would also impose significant obstacles for European manufacturers: to gain approval in the United States, they must demonstrate that none of the components affected by the regulation and made in China are used.

"Chinese automakers are trying to dominate the technologies for connected vehicles in the United States and globally," the Biden Administration stated during the recent tightening of trade laws. "This poses a new threat to our national security, including through our supply chains." There are serious concerns that Chinese companies might use their vehicle technologies to collect data about US drivers and infrastructure and relay it to their government. This includes data collected inside the vehicle, such as sensitive driver and passenger information, as well as cameras and sensors that enable automated driving systems and record detailed information about American infrastructure. Additionally, there are concerns about potential foreign manipulation of internet-connected vehicles and navigation systems.

The White House initiated an investigation in February regarding these potential dangers. The current legislative proposal is the result of this study. "If foreign adversaries develop software for a vehicle, it can be used for surveillance and be remotely controlled, which threatens the privacy and safety of Americans on the road,"CNBC quotes US Commerce Secretary Gina Raimondo."In an extreme situation, a foreign adversary could shut down all vehicles operating in the United States at the same time, or take control of them, thereby causing accidents and blocking roads." Therefore, the hardware and software components in connected vehicles covered by the ban would enable the collection of information about geographical areas or critical infrastructure, and thus offer malicious actors the opportunity to disrupt the operation of the infrastructure or the vehicles themselves.

Possible exemptions still under consideration

The Alliance for Automotive Innovation (AAI), a trade group representing automakers like Volkswagen, General Motors, Toyota, and Hyundai, has already warned about a too stringent timeline for these bans. They pointed out that replacing such key components in upcoming vehicle models would be very cost- and time-intensive. The group highlighted that hardware and software for connected vehicles are developed globally, including in China, but could not provide specific details on the extent to which components manufactured in China are currently predominant in U.S. models.

Additionally, it should be investigated what happens with components that are manufactured in Mexico or South America. The USA has a free trade agreement with Mexico; however, Chinese companies have been producing electronic components in South America for some time now and labeling them for Mexico. Critics warn that Chinese products might effectively enter the US market this way.

The timeline for when the final regulations will be enacted is not yet known, as a final version is still being drafted. The US Department of Commerce has announced plans to closely collaborate with the industry, political allies and partners of the USA, and other stakeholders throughout the regulatory process to minimize unintended economic consequences or disruptions. For instance, procedures are being developed that might allow smaller vehicle manufacturers to be temporarily or completely exempt from the regulations in exceptional cases. At the same time, it was emphasized that all measures will be taken in the interest of the national security of the USA.

China responds calmly, central bank enacts economic aid

Initially, the Chinese economy appeared unimpressed by the latest US maneuvers in the trade dispute: According to CNBC, all Chinese vehicle manufacturers listed on the Hong Kong stock exchange experienced a slight increase in value.

This may also be related to the announcement by the Chinese central bank to provide a comprehensive investment package of 800 billion yuan (approximately 101 billion euros) to reinvigorate the recently faltering Chinese economy and ensure the liquidity of troubled Chinese companies. According to the China Automobile Dealers Association (CADA), auto dealers in the country had to absorb a total loss of 138 billion yuan (17.55 billion euros) in the first eight months of the year, as they were forced to sell new cars at significant discounts.

US tariff increases

USA increases tariffs on China's EVs, semiconductors, solar cells, and more