This radical new policy will impact new and used car prices. New car prices are about to get a lot more expensive, here's why.
A new radical government policy proposal attempts to “technically” constitute a ban on Chinese cars. This sounds great on the surface, but dig deeper and you’ll see how crazy this policy really is.
The move from the U.S. Department of Commerce appears to be a sanction on both China and Russia. Russia was neither exporting cars to the US, nor was it making significant hardware or software components to such cars either. So, this is really about China, with the inclusion of Russia only for optics.
It bans cars that include software or other components that have a connection to China. What does that mean? Well, it could mean that Chinese workers have worked on such software or hardware that goes into a U.S.-branded vehicle or as a component to cars that are assembled in the US.
This would impact many brands, including Honda, Toyota, Volvo, Mercedes, Hyundai, and others. What this policy also states is that, 100% of all cars made in China, whether from Chinese companies or others that have factories there, such as Tesla and Ford, will be banned for sale in the US.
Could a car company like General Motors, Ford, or Tesla be able to remove all software and other components that have a link to China? Perhaps, with enough time and resources. It would be costly and take many years. And the cost of their vehicles will increase.
The policy applies to any car components with a “nexus” to China - that means any connection to China. The U.S. government would decide if it wants to keep these companies in business, and could allow the U.S. government to make life difficult for an automaker like Tesla.
The Biden Administration’s proposed policy effectively also means that no cars made in China will be sold in the U.S. Even before considering the tariffs the administration has imposed tariffs, from both the Trump and Biden administrations.
The government is now looking to raise the tariffs even higher. Yet, this new proposed Biden administration policy goes even further than that. The punishment to China is severe, but it will hurts many companies.
Specifically, it doesn’t matter where in the world a Chinese car is made. You may think that it has to be built in China, but the Chinese automakers are building new factories around the world as we speak, including Turkey, Mexico, Africa, countries around Africa and Europe, and more. The policy would apply there as well.
Under this new policy, the Chinese company Geely (which owns Volvo and Polestar), presumably would not be allowed to sell vehicles in the U.S. because they use relevant components that have a “nexus” to China. Because there is no question that all of cars contain components that have a “nexus” to China. Imagine trying to get repair parts for older cars. This will impact everyone.
But wait! What if Volvo builds a factory in the U.S., then we’re good, right? First of all, Volvo already has a factory in South Carolina and production has been ongoing since 2018.
Yet, this new policy says that even if the car is manufactured in the U.S., it will be banned if it contains such software or hardware with a “nexus” to China. This would be a serious issue for every car brand and other industries too.
Here is what the proposed policy states:
“The rule would also prohibit manufacturers with a nexus to the PRC (China) or Russia from selling connected vehicles that incorporate VCS hardware or software or ADS software in the United States, even if the vehicle was made in the United States.”
It takes re-reading the government’s document a few times before it sinks in, because the wording is deliberately specific. Starting at the end of 2026 for software, and at the end of 2029 for hardware, no cars will be allowed to be sold in the U.S. if they contain “sensitive” components with a “nexus” to China or Russia. But again, this is really all about China.
Automakers will have a short time to find new vendors with zero connection to China or Russia. This will increase the cost of new cars and make them further out of reach to consumers. Think about replacement parts for older cars that are made in China, those parts could not come to the U.S. as well. Almost all vehicles will be impacted. The more you realize the impact - the more it is very clear. Automobiles are going to get very expensive.
There are numerous reasons why this proposed law should be softened or cancelled altogether. This policy is ultimately a political decision, and it has been presented at the peak of the presidential campaign. It’s important to note that Canada has quickly followed the U.S. with this upcoming policy and it will impact cars built in Canada that are shipped to the U.S., as well.
There is more to this nightmare, we will be watching and reporting.
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Lauren Fix, The Car Coach is a nationally recognized automotive expert, media guest, journalist, author, keynote speaker and television host. A trusted car expert, Lauren provides an insider’s perspective on a wide range of automotive topics and safety issues for both the auto industry and consumers. Her analysis is honest and straightforward.