U.S. Ban on Chinese Software in Cars: How Korea Gets Caught in the Middle
On September 2024, the U. S. Department of Commerce proposed a ban, which will be effective from 2027, on key Chinese software in ‘connected vehicles’—a legal term used to describe vehicles that are equipped with extraneous technology such as the Internet and external devices—in the United States to address national security concerns. This regulation also includes a hardware ban taking effect in 2030. This initiative is intended to prevent Chinese intelligence agencies from monitoring and collecting information on American drivers from their connected personal devices. “When foreign adversaries build software to make a vehicle that means it can be used for surveillance, can be remotely controlled, which threatens the privacy and safety of Americans on the road,” Commerce Secretary Gina Raimondo said. Depending on the strictness of these regulations, Korean car manufacturers will have to work out a strategy accordingly, as they rely heavily on exports to the U. S. In fact, the U. S. is the largest automobile export destination for Korea, making up 42. 9% of their global automobile exports according to KIET (Korea Institute for Industrial Economics & Trade). Therefore, the Korean automotive industry has a vested interest in the U. S. ’s new prohibition plan. In fact, this measure could have severe consequences for the Korean automotive industry, posing a significant dilemma to Korean automakers. The first issue related to such a prohibition is that the definition of connected vehicles is excessively broad, which makes it difficult to discern the potential effects on manufacturers. Currently, the U. S. Department of Commerce Bureau of Industry and Security proposes to define the ‘connected vehicle’ as an on-road vehicle that “integrates onboard networked hardware with automotive software systems to communicate via dedicated short-range communication, cellular telecommunication connectivity, satellite communication, or other wireless spectrum connectivity with any other network or device. ” Thus, regulations could potentially include even smaller Chinese parts such as bolts. In this case, most of the recently released vehicles would become subject to U. S. export regulations. Hence, in late April, the Korean government expressed the Korean automotive industry’s concerns over the U. S. ’s envisioned rule on connected vehicles and called for a “precise definition” of the term ‘connected vehicles’. Moreover, such initiatives take a toll on price competitiveness for Korean automakers, as China has long been a cost efficient source for auto parts. Regardless of the exact scope of the regulations, as long as the ban is in effect, automakers will have to localize and diversify the supply chain for auto parts outside of China, resulting in an inevitable loss of price competitiveness as well as an uptick in related costs. The dilemma is clear: adhering to the ban could strain Korea's trade relations with China, yet ignoring it may result in losing critical benefits from the U. S. , whether it be security or economic benefits. There are observations that the U. S. ’s actions may block Chinese automotive competitors from entering the U. S. market, which could be beneficial in the long term; however, the issue seems to result in a net loss for Korea for now. The U. S. -China trade conflict is not a bipartite issue, but a multilateral issue affecting an array of interrelated countries especially in terms of economic interests and political relations. This case in particular highlights how interconnected global markets have become ever since free trade has gained presence worldwide. South Korea has not been immune from it: it is caught in the middle, forced to balance its economic interests and political alliances. For Korea, solutions may lie in continued behind-the-scenes negotiations to secure more precise regulations, and minimize disruption to the auto industry.