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Banning Chinese cars is dangerous and self-defeating

Banning Chinese cars is dangerous and self-defeating

The Biden administration issued the new rule citing national security concerns without providing any evidence

Analysis | Asia-Pacific

In September, the U.S. Commerce Department issued a rule that would result in a de facto ban on all Chinese autos in the United States. Invoking a looming danger to national security, Biden administration policy claims — without offering evidence or considering alternatives — that only complete exclusion of Chinese auto firms could keep Americans safe.

This is only the latest indication that the U.S. political elite, seized with panic over the challenge China poses to American power and prosperity, is creeping toward cutting off the U.S. from Chinese advanced sectors across the board. Not only does this approach drive us further down the road to great power bloc formation, it is likely to seriously damage the long-term global competitiveness of U.S. firms as well.

On this issue as with so many others connected to China, American leaders are identifying genuine problems that do require changes in U.S. laws, regulations, and even governing philosophy. But rather than the careful and pragmatic response that could turn Chinese competition into a force strengthening American business, revitalizing the global economy, and accelerating the global climate transition, the exclusionary U.S. response reinforces a world of a zero-sum competition in which all sides lose.

The rule in question, “Securing the Information and Communications Technology and Services Supply Chain: Connected Vehicles” (15 CFR Part 791), was put forward by the Commerce Department’s Bureau of Industry and Security, the same body executing the Biden administration’s blockade on advanced semiconductors against China. It builds on a landmark executive order issued by Trump in 2019 by which the president arrogated to the executive branch the authority to ban any communications technology associated with a “foreign adversary.” In this case, as with most Trump measures against China, the Biden administration chose to maintain the existing restrictions and steadily expand them.

BIS’s rule would prohibit the presence of Chinese-designed or -produced hardware and software in the external connectivity systems of vehicles. This may seem like a niche concern, but McKinsey expects 95 percent of cars sold globally to be connected by 2030, against 50 percent in 2020. Every automaker, regardless of where its headquarters is situated, is transitioning to a profit model based heavily on selling software in connected cars and exploiting the consumer data those connected cars make available. The transition to electric vehicles reinforces these trends because 97 percent are connected.

Chinese automakers have been at the forefront of both these developments. In August, electric and hybrid vehicles accounted for 54 percent of sales in China — compared with 19 percent in the United States. In digital performance, Chinese companies are also eclipsing legacy automakers from the U.S., Japan, and elsewhere, their only real competition coming from U.S. startups like Tesla and Rivian. The Commerce Department rule thus strikes at the heart of Chinese companies’ consumer appeal.

It is also likely to close the last opening for Chinese companies to reach the American market. In 2023, Chinese EV exports to the United States represented only two percent of the total. In May, the Biden administration announced it would increase tariffs on Chinese electric vehicle exports from 27.5 percent to 100 percent, essentially closing the U.S. market to China-based producers. But that left open the possibility of Chinese factories setting up in third countries or even in the United States to sell into the U.S. market. México, with its well-established auto industry, low wages, and free trade to the American market via NAFTA’s successor, the USMCA, would have been particularly attractive. BIS’s rule effectively rules out that possibility.

Significantly, the administration is justifying the rule on national security grounds. As Commerce Secretary Gina Raimondo said, “Cars today have cameras, microphones, GPS tracking, and other technologies connected to the internet. It doesn’t take much imagination to understand how a foreign adversary with access to this information could pose a serious risk to both our national security and the privacy of U.S. citizens.”

The administration does not provide any evidence that the Chinese state has ever forced auto companies to use their technology to gather intelligence or to manipulate their hardware to introduce secret vulnerabilities. It does not consider whether the almost nonexistent U.S. protections on data privacy allow easier routes to gaining such information or whether the weak U.S. regulation of auto connectivity systems would allow foreign adversaries to hack into cars regardless of their national provenance.

It does not weigh whether the Chinese government’s intense interest in cultivating strong global auto brands might discourage behavior that would have a disastrous effect on their public image worldwide. The administration merely notes that Chinese laws notionally allow such abuses and, with a little imagination, we can think up all kinds of scary scenarios.

Such reasoning reflects a sharp shift in policymakers’ thinking in recent years. Previously, they found it easy to tolerate the risks involved with international connection and interdependence; now they evince absolute intolerance of any risk they can dream up, particularly if it can be imagined as involving nefarious intent on China’s part. Not only does this shift lead U.S. leaders to underestimate other kinds of risk, it also causes them to neglect what may be a far more serious threat: large-scale great power conflict.

After all, appealing to national security to ban Chinese vehicles without any evidence of malpractice signals clearly that Washington already considers China to be its enemy. Indeed, on Trump’s last day in office in 2021, the Commerce Department listed China as one of the half dozen officially designated “foreign adversaries” of the United States for purposes of banning communications technology. The Biden administration made no move to reverse the designation.

Chinese observers are getting the message loud and clear. As Li Haidong, a professor at China Foreign Affairs University put it: “In recent years, shoving normal economic activities under the heading of ‘national security’ to smear and suppress China has been a constant practice among U.S. politicians. They’re also using it to manufacture an anti-China consensus among the public, laying a foundation for increasingly extreme policies against China.”

Each new exclusionary measure deepens disillusion on the Chinese side and further fragments the global economy, exacerbating the core zero-sum pressures that caused the collapse of U.S.–China relations in the first place.

Encouraging globe-spanning conflict is not the only consequence. Excluding Chinese companies from the American market on national security grounds also precludes any path to restoring market access. Apparently the Biden administration did not entertain the possibility of creating safeguards that Chinese companies could in principle meet to address the genuine concerns about hacking and data security. That means that U.S. automakers will never have to confront the challenge of their more advanced Chinese competitors, which may undermine the long-term viability of the U.S. automotive industry itself.

U.S. car companies, which refused to invest in electric vehicle production for decades, now say they need more time to make the transition. The same companies that spent hundreds of millions of dollars undermining government proposals to spur the EV transition complain that China’s efforts to develop the new industry were unfair — though they are happy to take the similar subsidies and preferences that the U.S. government is now offering. The same companies that fell behind Chinese auto firms’ digital innovation have discovered national security concerns that force them to support removing those firms from the American market.

There are better ways to handle the challenge of Chinese competition, in part by studying China’s response to an even more difficult competitive landscape in the late 20th century. As it integrated into the global economy, China faced corporations from the rich countries that dominated their sectors and left few openings to Chinese producers. Rather than excluding foreign businesses, Chinese leaders embraced their presence in the Chinese market to gain access to advanced technology and know-how, and to exert competitive pressure on Chinese businesses. However, Chinese leaders also modulated the otherwise overwhelming force of foreign competition, using the techniques of managed trade, industrial policy, and state-structured market competition to catch up before fully opening the domestic market.

U.S. automakers are largely responsible for their own uncompetitive position, but the auto industry is essential to jobs and innovation in the American economy and cannot be sacrificed. Yet absolute protection from Chinese competition virtually guarantees that U.S. firms will fall further behind and will become increasingly irrelevant in global auto production. The fear of China’s presence in American society is not only leading us into international conflict, it is simultaneously undermining the core sources of U.S. strength.

Top image credit: Tada Images / Shutterstock.com
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