Since his inauguration as US President last month, Donald Trump has been throwing caution to the rulebooks. Automotive industry stakeholders, both local and global, wait and watch for the many implications to unfold as President Trump brings key national issues to the fore—perceived security threats from mainland Chinese automakers and technology companies; environmental policy, particularly as it relates to vehicle emissions, infrastructure spending and safety regulations; and trade policy, as it relates to both the US-Mexico-Canada Agreement (USMCA) and potential protectionist tariffs.

These issues may seem decoupled and independent of each other at first sight but are closely intertwined and are likely to cause lingering ramifications for automotive supply chains.

To give some context, in May 2024, the Biden administration spelt out the final rules governing the implementation of a major electric vehicle tax credit with updates to the credit's critical minerals restrictions. In January 2025, the Biden administration finalized rules to safeguard US connected car technology supply chains, seeking to effectively ban the sale of vehicles in the US with software or hardware related to vehicle connectivity and autonomous driving systems developed by companies tied to Russia or mainland China, regardless of production location.

However, President Trump, on day one of his second presidential term, pledged to revoke the so-called electric vehicle mandate and signalled his intent to undo much of his predecessor's legacy when it comes to electric vehicle promotion. But it's still unclear how sweeping the impact will be or whether it will ultimately kill the $7,500 EV tax credit for buyers.

Likewise, regarding the ban on Chinese-origin connected car technology, the incoming Trump administration hasn’t made its stance clear or divulged any further details yet, but what it effectively seeks to do is ban mainland China brands from manufacturing in Mexico and shipping to the US under the USMCA. The proposed ban covers hardware and software that interact with key technologies, such as Bluetooth, Wi-Fi, satellite and cellular, all of which allow a vehicle to communicate with the outside world. It also includes automated driving systems that allow highly autonomous vehicles to operate without a driver behind the steering wheel. That said, the rule includes provisions for exemptions on an exceptional basis to minimize disruptions to the industry, particularly for small vehicle producers.

President Trump proposed a 25% tariff on Canadian and Mexican value-added content for Light and Medium/Heavy Commercial Vehicles and Components, with implementation slated for February 4, 2025. The Trump administration aims for the tariff to drive changes in border control and clampdown on illicit drug smuggling. At the time of writing, President Trump and the leaders of Mexico and Canada struck last-minute deals that postponed the imposition of tariffs for another 30 days.

Exceptions and exemptions seem imminent. The US ban on sale of connected vehicles and connectivity components from China is likely to affect not just foreign but also local OEMs who rely on Chinese supplies in one way or the other.

Volvo’s Polestar is one such brand. Polestar, which claims only 280 of its 2,800 employees work in mainland China, and that 70 percent of its directors are either from the US or Europe, doesn’t only build cars in China but also in South Korea and has just begun production of its ‘3’ SUV in Ridgeville, South Carolina, creating hundreds of local jobs. Sister brand Volvo, which shares the site and makes its cars from the same component set as Polestar, is also at risk from the proposal. According to CEO Michael Lohscheller, Polestar is already looking for new non-Chinese suppliers to circumvent the Biden administration’s ban.

Chinese-made imports such as the Lincoln Nautilus and Buick Envision are also at risk. Ford has urged the US Commerce Department to ensure cars are only prohibited from sale based on their hardware and software and not because of where they’re assembled.

Speaking of Tesla, Elon Musk had criticized the Biden administration’s proposed ban when announced last year, warning that it would add “unneeded regulatory burdens” on software designed by non-US individuals. Tesla has a huge presence in China, making it vulnerable if the Chinese government introduces retaliatory restrictions. Whether Musk can negotiate exemptions for Tesla given his apparent clout with the new Trump administration remains to be seen.

Elsewhere, BYD has had a reprieve. Thanks to an exemption for vehicles heavier than 10,000 pounds, the Chinese automaker can continue to assemble electric buses at its plant in Lancaster, California.

The Alliance for Automotive Innovation, representing GM, Toyota, Volkswagen, Hyundai, and other major automakers, has unsuccessfully sought an additional year to meet the hardware requirements.

S&P Global Mobility’s perspective

• Automotive supply chains are fragile and prone to ripple effect.Historically, we’ve seen how badly automotive parts and technology suppliers were hit during emergency or catastrophic events, including COVID-19, the 2021 Texas ice storms, the Francis Scott Key Bridge collapse, etc. Talking specifically about the connected car technology ban, one potential impact could simply be the amount of homework an automaker has to do to figure out which components in their supply chain are being sourced from China (particularly for software) and what are the available alternatives to re-source them if needed. This will likely impact most industry stakeholders, particularly in the mid-term.
• “Knock-on effects” are always the concern with supply chain disruptions.Most supply chain disruptions are characterized by knock-on effects which could be more profound when the components involved are technology-intensive and software-dependent, as most vehicle connectivity and autonomy modules are. OEMs need to figure out where to look out for capacity as it’s not common practice for suppliers to keep long-term excess capacity open, which can be an expensive affair. From a supplier perspective, vehicle communication modules are reasonably commoditized and have been dropped by tier suppliers in the past as margins wore out. As such, suppliers will need to understand how lengthy this ban may be to decide if there’s opportunity to re-introduce a product to market.
• Enforcement issues with software.Enforcing a ban on connected car software is more challenging vis-à-vis hardware as it can be difficult to pin down where exactly certain aspects of the overall software stack or even lines of code are coming from. This is exactly why software developed in China before the ban specifics were finalized has been exempted—as long as it’s not maintained by a Chinese firm—likely in response to concern from automakers and suppliers.

Conclusion

Although it is uncertain at this point how the Trump administration will react to the Biden era proposal, at face value the ban on Chinese software and hardware does support Trump’s America First stance and his promotion of national security which the new President has said are a priority for his administration.

The potential ban, if imposed, could impact global supply chains for connected-vehicle systems, as well as future product plans for the many suppliers operating in mainland China and elsewhere. It would also lead the industry to re-evaluate its sourcing strategies for these systems, both regionally and globally. The good thing is that any automakers affected by the prohibitions have some time to comply with the new rules.

Automakers currently sourcing vehicle connectivity and autonomy technologies from China could knock on the doors of Indian suppliers given their software prowess. Initially this may be only for affected American nameplates but could then expand in scope. It's a niche and somewhat risky play but definitely a near-term opportunity for the Indian technology sector.

The USMCA too faces uncertainty as it is unclear whether the agreement will survive Trump’s tenure, particularly if the 10%–20% increased tariffs on all goods (including vehicles and vehicle parts) are imposed, let alone the threatened 25% tariffs on imports from Mexico and Canada.

Lastly, preventing local US automakers from tapping into Chinese expertise and supply chains could prove counterproductive, increasing costs and undermining competitiveness over time, since made-in-China automotive components are already much less costly. Importers are likely to pass the increased tariff costs to consumers who are already facing affordability issues as average vehicle prices in the US are near all-time highs.

All told, it seems that all stakeholders will have to play a balancing act going forward—automakers in effective lobbying to get exemptions, the Trump government in doling out these exemptions, and suppliers in rationalizing their next investments.

Author: Vivek Beriwal, 
Senior Research Analyst,
S&P Global Mobility

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