SHANGHAI: A US plan that would further limit Chinese electric cars via software and hardware curbs may have ramifications beyond the auto industry and could result in retaliation against US businesses in China, some analysts say.

US officials are set to unveil a proposal to ban the use and testing of Chinese and Russian technology and equipment in automated driving and vehicle communications systems, people familiar with the matter told Bloomberg News.

The pending restrictions stem from an investigation into cybersecurity risks posed by Chinese vehicle software that President Joe Biden launched in March.

Bill Russo, founder and chief executive officer of Shanghai-based investment advisory firm Automobility, questioned the US strategy given the proliferation of Chinese software in other consumer products.

“If it’s OK in something other than a car, it’s OK if it’s in a TV set or a smart device, what is the end game here?” he said.

“If the goal is to de-risk China software, where do you draw the line?”

He added that an outright ban would only ratchet up existing political tensions between the two superpowers and would be met with reciprocity that will impact US business in China.

In May, the United States quadrupled tariffs on Chinese electric vehicles (EVs) to a punitive 102.5%. Despite that, politicians including former President Donald Trump and industry figures in the United States have expressed increasing concern that Chinese car companies will set up in Mexico to avoid the tariffs.

Tu Le, founder of US-based advisory firm Sino Auto Insights, said Washington’s plan will close a major loophole that Chinese EV makers have eyed as a way to bypass import tariffs into one of the world’s biggest auto markets.

This will be implemented without having to unpick a free trade accord between the United States, Mexico and Canada, also known as the North American Free Trade Agreement or USMCA.

“This is the United States closing the Mexico back door because if Chinese automakers had decided to build in Mexico, then they could enter via the USMCA and have free reign into the United States,” he said. “The USMCA can stay intact while Chinese vehicles can’t enter the United States.”

In response to US concerns, the trade ministers of the three USMCA members agreed in May to “jointly expand their collaboration on issues related to non-market policies and practices of other countries,” said a statement directed at China, according to a report from the US Trade Representative. 

 - Bloomberg