Why is the U.S. Worried About Chinese Smart Cars?

Bloomberg reported that the U.S. is considering restrictions on imports of Chinese electric vehicles (EVs) to address growing concerns about data security.  The restrictions would apply to EVs and parts originating from China, no matter where they are finally assembled, to prevent Chinese makers from moving cars and components into U.S. markets through third countries like Mexico.

U.S. officials are particularly concerned about the troves of data collected by Chinese smart cars, including EVs and other connected and autonomous vehicles.  Many of today’s new cars, both gas and electric, are equipped with internet connections, making them potential targets for hacking.  U.S. Commerce Secretary Raimondo warned last month that Chinese-made electric vehicles pose significant national security risks and are “collecting a huge amount of information about the driver and the location of the vehicle.”

Intense competition in the industry is pushing automakers to equip their cars with more sensors and driver-assistance software.  Chinese regulations require automobile companies to store and process much of the data within the country, a rule that could cover sensitive personal information collected by EVs, from license plates to facial characteristics.  The Chinese government has already imposed restrictions on Tesla (TSLA) and has forbidden Tesla vehicles from traveling on certain roads in parts of China, citing national security reasons.

High U.S. tariffs on Chinese EV imports have kept most of the China’s automakers out of U.S. markets. However, the U.S is concerned that may soon change since the retail price of EVs made in China is less than half EVs manufactured in the U.S.  There is also a concern that Chinese companies like Contemporary Amperex Technology, the world’s biggest EV battery maker, may try to take advantage of tax credits in the Inflation Reduction Act and partner with U.S. companies to boost production here in the U.S.

The U.S. wants to prevent potential attempts by Chinese companies to evade tariffs using third-country shipments.   According to Bloomberg, the Biden administration is considering issuing an executive order as soon as next week to issue new restrictions on transactions involving data that could threaten national security if obtained by “countries of concern.” Chinese EV makers, including BYD Co, have been considering sites in Mexico for factory investments, and Treasury Secretary Yellen recently said that the U.S. intends to help Mexico beef up screening of foreign investments, including China.  The U.S. believes the new restrictions on data collecting are necessary since tariffs alone won’t fully address the issue. 

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