US To Investigate “Security Concerns” Involving Chinese Electric Cars

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We have been talking lately about the collective shudder that has gone through the community of American automobile manufacturers after it was learned that BYD is scouting locations for a new factory in Mexico. BYD built more battery electric cars than Tesla in the 4th quarter of last year to become the largest EV manufacturer in the world (Tesla built more in 2023 overall). Suddenly, everyone and their uncle is sounding alarms about the threat posed by Chinese electric cars.

But there is a problem. Cars built in Mexico can be imported to the US without paying any tariffs, thanks to the US–Mexico–Canada Agreement that replaced NAFTA. The Alliance of American Manufacturers calls the prospect of cheap Chinese electric cars flooding across the border an “extinction level event” for US automakers and the hundreds of industries that rely on car manufacturing.

The US can’t simply ban Chinese cars without running afoul of the international free trade agreements that America itself championed for decades. When Chinese cars start arriving in quantity, they may be eligible for federal EV incentives of up to $7,500 each, and that is when the cheese will hit the fan.

Are Chinese Cars A National Security Risk?

The Biden administration has a Plan B — a backdoor way of keeping Chinese cars out of the country without erecting illegal trade barriers. If it can show that Chinese cars are a security threat, it can ban them on national security grounds without running afoul of trade agreements. On February 29, 2024, it fired the first shot in this new protectionist scheme in the following press briefing.

President Biden is committed to ensuring American automakers and auto workers are the best in the world. The U.S. auto industry is leading the world in quality and innovation, building cars in America with American workers. Chinese automakers are seeking to flood the autos market in the United States and globally, posing new threats to our national security. President Biden will not let that happen.

Today, President Biden is taking unprecedented action to protect Americans from the national security risks posed by connected vehicles from countries of concern, including the People’s Republic of China. At the President’s direction, the Department of Commerce will investigate the national security risks from connected vehicles that incorporate technology from countries of concern, including China, and consider regulations to address those risks.

Autos increasingly leverage advanced technologies to enable navigational tools, provide driver assist features, and reduce operating costs and carbon emissions through fast and efficient charging. These autos are constantly connecting with personal devices, other cars, U.S. infrastructure, and their original manufacturer.

New vulnerabilities and threats could arise with connected autos if a foreign government gained access to these vehicles’ systems or data. Connected vehicles collect large amounts of sensitive data on their drivers and passengers; regularly use their cameras and sensors to record detailed information on U.S. infrastructure; interact directly with critical infrastructure; and can be piloted or disabled remotely. Connected autos that rely on technology and data systems from countries of concern, including the People’s Republic of China, could be exploited in ways that threaten national security.

China has imposed wide-ranging restrictions on American autos and other foreign vehicles operating on their roads. Today, President Biden is directing his Administration to take unprecedented action to address the national security risks from connected autos that incorporate technology from China and other countries of concern.

The Department of Commerce is issuing an Advanced Notice of Proposed Rulemaking (ANPRM) to investigate national security risks posed by connected vehicles from countries of concern. As part of the investigation, Commerce will gather information from the industry and the public on the nature of these risks, and potential steps that could be taken to mitigate them. Commerce intends to use this information to help inform and scope potential regulations to govern the use of technology in vehicles from certain countries.

This is the first action taken by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) under Executive Orders focused on protecting domestic information and communications technology and services supply chains from national security threats.

The Administration encourages interested stakeholders to share input with the Department of Commerce through this process so their views can be taken under consideration. The Department will consult closely with industry, U.S. allies and partners, and other stakeholders throughout the regulatory process to ensure any actions maximally protect U.S. national security, while minimizing unintended consequences or disruptions.

Sinophobia Or Legitimate Concern?

Cars today are computers on wheels. Chinese authorities have prohibited Teslas from operating in certain areas because their cameras might record information about Chinese military installations and share it with the NSA, the CIA, the FBI, or any one of a hundred other US security operations (some of which are so secret no one is allowed to know anything about them, including the people who run them).

Will Chinese cars vacuum up information about America that will be shared directly with Xi Jinping? Will Xi spend his evenings watching videos of BYDs driving on American highways, hoping to catch a glimpse of a missile installation or submarine base? That seems a little hard to believe, and yet China has recently flown a steerable high-altitude weather balloon across the northern US that is presumed to have been a spy satellite despite strenuous denials from Chinese officials.

Mao Ning, a spokesperson from the Chinese foreign ministry, told the press in response to the investigation, “China urges the US to respect the laws of the market economy and principles of fair competition, stop overstretching the concept of national security, stop its discriminatory suppression of Chinese companies and uphold an open fair and non-discriminatory business environment.”

Commerce Secretary Gina Raimondo said this week that connected cars “are like smart phones on wheels” and pose a serious national security risk. “These vehicles are connected to the internet. They collect huge amounts of sensitive data on the drivers — personal information, biometric information, where the car goes. So it doesn’t take a lot of imagination to figure out how a foreign adversary like China, with access to this sort of information at scale, could pose a serious risk to our national security and the privacy of US citizens,” she said, according to the Associated Press.

Data collection is not the only concern, she and other officials said. Connected vehicles could also be remotely enabled or manipulated by bad actors. “Imagine if there were thousands or hundreds of thousands of Chinese-connected vehicles on American roads that could be immediately and simultaneously disabled by somebody in Beijing. So it’s scary to contemplate the cyber risks, espionage risks that these pose. We’re doing it now, before Chinese manufactured vehicles become widespread in the United States and potentially threaten our privacy and our national security,” Raimondo said.

The Takeaway

There is clearly some “yellow peril” xenophobia taking place here. Connected cars are in fact vulnerable to hackers, whether or not they are based in China. Those hackers could take over fleets of electric buses and cause them to drive backwards or ignore stop signs. The internet age is full of threats like that that really do need to be addressed before people find themselves in a real world version of the movie Speed as they drive along the expressway on the way to work. Nothing really limits those risks to nefarious Chinese operatives, however.

The European Union is also conducting an investigation into whether Chinese cars are being sold at unreasonably low prices on the Continent. The Chinese government has poured billions into building a dominant position in electric cars and the supply chain to make them. By most accounts, the cost of manufacturing electric cars in China is about one third lower than in the US or EU.

To be fair, China saw an opportunity in electric transportation 20 years ago and went for it — hard. In doing so, it caught the rest of the world napping. One thing China is very good at is long term strategic planning. It’s not really China’s fault that it stole a march on the rest of the world. From one perspective, it might be better for world peace if China had a thriving trade in electric cars in America, which would make it less inclined to turn covetous eyes toward Taiwan for fear it would damage trade relations with the US and EU. Isolated nations are dangerous nations.

How this situation will resolve itself is unclear. Perhaps the focus should be on protecting all internet-connected devices –including the electrical grid — from hackers instead of demonizing China. Hatred and suspicion are not a good base on which to build a healthy economic system.