House Committee Calls for Writing Connected Vehicles Restrictions Into Law

The committee, which held a hearing, called "Trojan Horse: China's Auto Threat to America," this week also heard from witnesses who said a similar approach should apply to ship-to-shore cranes, to heavy truck and cargo vans, energy grid, manufacturing systems, agricultural machinery, telecommunications -- anywhere that China provides cellular modules. Witness Charles Parton, senior associate fellow at the Royal United Services Institute, told the panel that Chinese companies could drive more democratic countries' manufacturers out of business through subsidized overcapacity.

Chairman John Moolenaar, R-Mich., noted in his opening statement that China has 70% of that market already. He also said with the advanced capabilities in modern cars, if they use Chinese electronics, "every car is a potential spy platform with a kill switch inside."

Moolenaar said the connected vehicles rule must be expanded, but didn't talk about specifics. Rep. Ashley Hinson, R-Iowa, raised concerns about Chinese lidar used in autonomous vehicles -- the connected vehicles rule does not cover lidar.

However, all three witnesses said there should be a ban on vehicles made by Chinese companies, no matter where they are built, as well as a ban on Chinese suppliers of "critical auto components."

The committee members also talked repeatedly about their concerns that Chinese companies are making auto parts in Mexico that meet USMCA rules of origin, and that the USMCA should be renegotiated to prevent Chinese participation in the North American auto supply chain.

Elaine Dezenski, senior director of the Center on Economic and Financial Power, Foundation for Defense of Democracies, told Rep. Darin LaHood, R-Ill., that at first, when it sounded like USMCA's review was going to be a renegotiation instead, "I was concerned that that would be problematic for a trade deal that has worked reasonably well. Now I feel a little bit differently."

While co-production boosts the automotive sector's competitiveness, she said, the pact needs to be "responsive to today's threats."

She said that Mexico, Canada and the U.S. should have common import structures and trade enforcement mechanisms. There needs to be more information on partner countries' manifests to ramp up trade enforcement, she added.

LaHood said he'd like her to come talk to the House Ways and Means Committee, where he serves, since it has jurisdiction over trade.

In her written opening statement, she said it's estimated that 30 percent to 40 percent of Chinese auto parts exported to Mexico enter the U.S. either directly or within assembled vehicles. "Between 2013 and 2023, the value of Mexican auto part imports from China grew from $2 billion to almost $5.3 billion," she said.

"We must coordinate to harmonize higher tariffs on Chinese auto components and vehicles (both EVs and internal combustion vehicles), further tighten rules of origin and labor requirements, and require Chinese firms operating in North America to certify non-compliance with China’s National Intelligence Law before Chinese firms benefit under USMCA," she said.

"As of now, Chinese cars are largely being kept out of the U.S. market (Volvo and Polestar, owned by China’s Geely, are the notable exceptions), but Chinese auto parts are still flowing in and undermining the North American automotive supply chain, both at the manufacturing and aftermarket stages."

Parton repeatedly praised the connected vehicles rule as excellent. BIS estimated it will affect 215 firms with domestic operations. Parton said, "What I like about the vehicle connectivity rule is the pressure it puts on your allies." He said the U.K. exports about 80% of its product, either finished or components. If the American market is closed to those, we better wake up.

"So, if you're saying to Europeans: You want access to our market, these are the rules. You better stick by them. I think it is a very important shaper of the way that companies will behave."

Applied Intuition co-founder Peter Ludwig said, "There's always been a natural incentive to lower costs, and so, historically, lowering costs has meant offshoring manufacturing and doing things overseas." But if key technologies are no longer made in the U.S., that "has a far greater cost to the country than the benefit of stock price and short-term profits of these companies. And I hope that our policies take those existential threats in consideration."

In addition to the problem of being able to dominate sectors due to non-market practices, and the ways laws and trade negotiations could put a fence around the U.S. market, several members talked about the problem of transshipment of Chinese auto parts and the sale of dangerous counterfeits.

Ranking member Raja Krishnamoorthi, D-Ill., brought a brake hose and a window regulator from two Chinese companies, each of which has been investigated for transshipment by the U.S. government. He noted that he, Moolenaar and Hinson introduced a bill to add funding at the Department of Justice to prosecute transshipment.

Dezenski said the capacity for trade enforcement is "a really important issue which sometimes gets pushed to the side." She said it's not just investigations like the ones he mentioned, but "also understanding at a much more granular level the supply chains, the transshipment routes."

Krishnamoorthi also pointed to evidence of thousands of workers from Xinjiang being transferred to work in China's "auto valley."

Dezenski replied, "It is a moral tragedy and there's no question about that -- but it's also an economic cheat. So, when we think about forced labor as one of these non-market practices, combined with all the other things that are going on these massive subsidies, the vertical integration, the IP theft ... it becomes impossible to achieve competitive gains against that as a Western manufacturer."

Rep. Ritchie Torres, D-N.Y., cited an economist who is concerned about China's dominance in batteries and magnets, needed for defense technologies like drones, not just electric vehicles and parts of combustion-engine vehicles.

Ludwig agreed, "We should absolutely not become dependent on China's electric tech stack." He added that, as someone who works in the auto industry, "We don't care whether people are buying EVs or internal combustion engines. The auto industry will create and produce what the consumer demand is."

Torres responded, "But China's outproducing us on both fronts."

Rep. Dusty Johnson, R-S.D., said the government needs to respond to this trend with urgency. "I cannot believe we are going to do this again. Before coming to Congress, I was in the telecommunications sector and there were so many instances in which we made a mistake by allowing Huawei to create massive American vulnerabilities throughout the telecommunications regime," he said. "We need to shut the barn door before all of the damn cattle are out."