US proposes banning Chinese software and components in vehicles

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The US Commerce Department on Monday proposed banning Chinese software and hardware for vehicles with a built-in internet connection, in a move that would in effect ban Chinese vehicles from the US market.

The rule follows concerns from the Biden administration about Chinese companies collecting data on American drivers and infrastructure as well as the potential for foreign adversaries to remotely manipulate connected cars on US roads. 

It is the latest step in a wider US effort to crack down on Chinese vehicles, software and components. The US already sharply raised tariffs on Chinese imports this year, including a 100 per cent levy on Chinese electric vehicles.

The measure would allow some exceptions to the ban if companies could show they were taking mitigating measures, such as auditing or site checking. But officials said the rule would essentially ban Chinese vehicles.

“Our assumption as of now is that Chinese vehicles will fall within the prohibition,” a senior official said.

The ban would also hit Russian software and hardware. Biden in February ordered an investigation into whether Chinese-connected vehicles pose a security risk to Americans.

There are few Chinese or Russian cars on the road in the US currently and the rule is designed to neutralise any national security threat they could pose in the future, officials said.

“We’re issuing a proposed rule to address these new national security threats before suppliers, automakers and car components linked to China or Russia become commonplace and widespread in the US automotive sector,” commerce secretary Gina Raimondo said.

She pointed to Europe, where Chinese cars have quickly flooded the market, as a “cautionary tale”.

“We know the Chinese playbook, they subsidise, so we’re not going to wait until our roads are filled with cars and the risk is extremely significant,” she said.

The Biden administration will draft a final rule after a 30-day public comment period, and aims to publish it before the president leaves office. The software bans would apply in the 2027 model year, while the hardware bans would take effect in January 2029 or 2030.

The commerce department is assessing other industries in which it might want to take similar action, such as drones or cloud infrastructure, officials said.

Officials said that the small amount of Chinese and Russian software in the US would make it relatively simple to phasing out, but hardware would be a bigger challenge.

“The hardware supply chain for these systems is slightly more complicated, there is more Chinese hardware,” a senior US official said. “During that time . . . there will need to be a focus on some shifting of that supply chain to other suppliers.”

The commerce department’s investigation revealed a range of possible threats as vehicles become more connected to critical infrastructure, including through charging stations, smart roads and cities, officials said.

These included possible threats to American consumers, such as collecting data on where drivers live, send their children to school or go to the doctor.

In an extreme example, they said a foreign adversary could shut down or take control of their vehicles operating in the US, causing crashes and blocking roads.

“We’ve already seen ample evidence of the PRC pre-positioning malware on our critical infrastructure for the purpose of disruption and sabotage,” said US national security adviser Jake Sullivan.

“With potentially millions of vehicles on the road, each with 10 to 15-year lifespans, the risk of disruption and sabotage increases dramatically,” he added.

Chinese-made batteries are not included in the rule, a second senior administration official said. “The hardware prohibition applies only to components for the vehicle connectivity system,” the official said.

A wide range of Chinese-linked suppliers are increasingly important to the US automotive industry.

Shenzhen-based BYD is the biggest electric bus manufacturer in the US via its California facilities. BYD would be eligible to apply for an exception to the rule, the second official said.

China’s Contemporary Amperex Technology Co., Limited (CATL) the world’s biggest battery group, has agreed to license technology to Ford for its planned $3.5bn factory in Michigan; it also supplies other US carmakers; while China’s Wanxiang Group is a major auto parts supplier in the US, and has had operations in Chicago since the mid-1990s.

Additional reporting by Edward White in Shanghai