The Pushback on Chinese Imports: Bigger than Tariffs

The Trump Administration, having entered into negotiations with Mexico and Canada over import tariffs, turns its head towards China. On February 4, 2025, the U.S. imposed a 10% tariff on a broad range of Chinese imports. This action was part of an effort to address issues such as the fentanyl crisis and trade imbalances.  The U.S. has also eliminated the de minimis exemption, which previously allowed goods valued under $800 to enter the country duty-free. This change affects many low-cost items, particularly from Chinese e-commerce platforms like Shein and Temu, potentially leading to increased costs and shipping delays.  What about the threat of Chinese vehicle imports?

Certain sectors have been subject to higher tariff rates. For instance, electric vehicles imported from China face a 100% tariff, while steel and aluminum imports are subject to a 25% tariff.  Trump granted a “cooling off” period with Mexico and Canada to address concessions the administration is looking for from its neighbors.  Among them, relief from an open border policy that has led to a dramatic rise in illegal immigration, which conservatives argued led to exploitation of women and children as well as allowed fentanyl to flow across the border.  Mexico is of special note, as production of Chinese-made products now includes EV brands from China.

Leading up to Trump’s election, China had commenced plans to circumvent tariffs that would lead to increased prices and slowed sales.  Mexico and China have used lower prices to increase imports, wiping out American manufacturers.  But not on vehicles.  Chinese-made vehicles face significant tariffs when entering the U.S. market. All cars manufactured in China and sold in the U.S. are subject to a 27.5% tariff, which makes them less price-competitive compared to vehicles produced in countries with lower or no tariffs. Additionally, there have been bipartisan efforts to ban the import of Chinese-made vehicles altogether, further complicating market entry for Chinese automakers. Vehicle manufacturers in the U.S. fear that China would label vehicles as Mexican imports, avoiding tariffs.

These tariff measures have led to heightened tensions between the U.S. and China, with both nations imposing retaliatory tariffs. The evolving trade policies continue to influence the economic relationship between the two countries.  While trade policies are subject to change, it’s not likely that the U.S. will kill domestic vehicle manufacturing by allowing “Made in Mexico” Chinese EVs.  China’s price gouging to eliminate competition is just one part of the story.  There are other factors that the administration and legislators are considering as other valid reasons for keeping Chinese vehicles out of the U.S. market:

Regulatory Challenges: The U.S. has stringent safety and emissions standards that all vehicles must meet. Chinese automakers may face challenges in ensuring their vehicles comply with these regulations, which can be a significant barrier to entry. Moreover, the lack of established dealership networks in the U.S. makes it difficult for Chinese brands to distribute and service their vehicles effectively.

Quality and Safety Concerns: There have been perceptions of lower quality and safety standards in Chinese-made vehicles. Reports have indicated that Chinese car companies generally underperform in terms of quality, reliability, and safety, with more problems arising within the first few months of a car’s lifespan compared to other foreign makes. This reputation poses a significant hurdle for Chinese automakers attempting to establish a foothold in the U.S. market.

National Security Concerns: The U.S. government has expressed concerns that vehicles imported from China could pose national security threats, particularly regarding connected vehicle technologies. Chinese automakers are seeking to dominate connected vehicle technologies in the United States and globally, posing new threats to national security.

Current Presence of Chinese-Made Vehicles: Despite these challenges, some vehicles manufactured in China are available in the U.S. market. Brands such as Buick, Lincoln, Polestar, and Volvo sell Chinese-made vehicles in the U.S. However, these are not Chinese-branded vehicles; instead, they are models from established American or European brands that have manufacturing operations in China.

The influx of low-cost Chinese vehicles could disrupt the U.S. automotive market, leading to significant economic consequences. Studies estimate that imposing tariffs on car parts and vehicle imports could result in a reduction of 2 million vehicles sold and a total job loss of more than 700,000 across the sector. From a consumer perspective, such tariffs could add as much as $6,400 to the cost of a $30,000 vehicle in the U.S., increasing monthly payments by up to $120.

Chinese automakers, particularly in the electric vehicle (EV) sector, have made significant cuts in manufacturing and labor costs and are producing competitively priced models. However, because China’s EV market is supported by government financial backing, these imports have an unfair market advantage which poses a competitive threat to U.S. manufacturers, potentially leading to market share losses and financial challenges for domestic companies.

The introduction of Chinese vehicles could also disrupt existing dealership networks. Traditional dealerships may face challenges in competing with the pricing and business models of Chinese automakers, potentially leading to reduced sales, financial strain, and even closures. This would not only affect dealership owners but also result in job losses for employees and decreased economic activity in local communities.

There are also concerns that vehicles imported from China could pose national security threats, particularly regarding connected vehicle technologies. Chinese automakers are seeking to dominate connected vehicle technologies in the United States and globally, posing new threats to national security.  There were reports coming out of China that suggest that manufacturers had remote control (OTA) of vehicles on the road, preventing owners from driving vehicles until important software updates were installed or to prevent vehicle repairs from anyone other than the OEM, a violation of the Right to Repair Act in the U.S.

Vehicle safety has also been a concern.  There have been reports of quality and safety issues associated with Chinese-made vehicles. For instance, some Chinese electric vehicles have experienced a higher frequency of fires, possibly due to less robust batteries and advanced battery monitoring technology. These concerns raise questions about the reliability and safety of such vehicles for American consumers.

Chinese automakers have faced accusations of benefiting from government subsidies, forced labor, and intellectual property theft. These practices raise ethical and legal concerns and could lead to unfair competition, disadvantaging U.S. manufacturers who adhere to stricter regulations and labor standards.

The Chinese government’s ownership stake and support for domestic vehicle manufacturers can potentially influence the transparency of information regarding vehicle safety and quality. This relationship may lead to concerns about the dissemination of complete and accurate information to Chinese consumers. Research indicates that there is a disparity in recall rates between safety-related and non-safety-related defects in China. Specifically, the recall rate for safety-related defects is 11.2%, compared to 2.2% for non-safety-related defects. This suggests that not all safety-related issues are being adequately addressed, potentially due to insufficient information disclosure.

The Chinese government’s significant involvement in the automotive industry, including data localization requirements and stringent control over information dissemination, may contribute to a lack of transparency. For instance, regulations mandate that personal information and important data collected by smart car manufacturers be stored within China, with government-led security assessments required for cross-border data transfers.

This level of control can result in limited public access to comprehensive data on vehicle performance and safety issues, potentially obscuring the true quality and safety of vehicles available to Chinese consumers. Consequently, consumers may not receive complete information necessary to make fully informed decisions about vehicle purchases.

In China, vehicle recalls are governed by the “Regulations on Administration of the Recall of Defective Motor Vehicle Products,” which apply to motor vehicles and trailers produced or sold within the country.  When a defect is identified, manufacturers are obligated to cease production, sales, and imports of the affected vehicles and initiate a recall to address the issue. Despite these regulations, challenges persist in effectively managing vehicle recalls in China. The broad definition of “defect” under the regulations can lead to inconsistencies in recall decisions, potentially allowing some defective vehicles to remain in circulation, thereby endangering public safety.

The effectiveness of recall policies can also influence the depreciation of vehicle value. Frequent or poorly managed recalls may erode consumer confidence in certain brands or models, leading to a decrease in their market value. This is already happening quite frequently in China and has led to the demise of several manufacturers, leaving Chinese consumers with little to no recourse.  Additionally, if defects are not promptly addressed, the perceived reliability of vehicles can diminish, further accelerating depreciation.

There have been concerns about the transparency of information regarding vehicle quality and safety in China. Instances where manufacturers have been slow to disclose defects or initiate recalls can contribute to a perception that facts surrounding vehicle safety are obscured. This lack of transparency can undermine public trust and may lead consumers to question the overall quality and safety of vehicles.  Would Chinese manufacturers comply with NHTSA over recall compliance, especially if there is expected to be limited assistance from local dealerships?  The automotive industry is witnessing a significant shift as manufacturers increasingly consider selling vehicles directly to consumers, bypassing traditional dealership networks.

While this direct-to-consumer (DTC) model offers potential benefits, such as streamlined purchasing processes and potentially lower costs, it also raises several concerns that may not align with the best interests of American consumers. Traditional car dealerships have long served as the primary point of contact for consumers seeking after-sales support, as is the case for recalls. They offer a range of services, including routine maintenance, repairs, and warranty work, ensuring that vehicle owners have convenient access to necessary services.

In a DTC model, the absence of a widespread dealership network could lead to challenges in providing timely and effective after-sales support. How is Tesla managing after sales support without a dealer network?  Like Tesla, manufacturers would need to establish their own service centers or partner with third-party providers to offer maintenance and repair services. This transition could result in limited service locations, longer wait times for appointments, and potential delays in obtaining necessary parts, all of which would inconvenience consumers.

The traditional dealership model facilitates efficient recall management by leveraging established networks to notify consumers, schedule repairs, and perform necessary fixes promptly. Under a DTC model, managing recalls could become more complex. Without an extensive network of service centers, manufacturers may struggle to provide timely repairs, especially if the number of affected vehicles is substantial.  In China, there’s little concern with supporting Chinese consumers.  American consumers might face difficulties in scheduling recall-related services, leading to prolonged exposure to potential safety risks. Additionally, the logistical challenges of coordinating repairs without a dealership network could result in delays and increased costs for both manufacturers and consumers.

In the U.S., the traditional dealership model is subject to a range of state and federal regulations designed to protect consumers. These regulations cover aspects such as warranty enforcement, lemon laws, and fair pricing practices. Dealerships, being local businesses, are accountable to these regulations and to the communities they serve, providing consumers with avenues for recourse in the event of disputes or issues.  Before Chinese imports would make their way into U.S. markets, the subject of local product support would need to be addressed.  In all likelihood, the first steps in Chinese imports would have to begin through the local dealer distribution.

The move towards DTC sales is not without legal hurdles. Many states have franchise laws that require vehicles to be sold through independent dealerships, a framework designed to promote competition and protect consumers. Manufacturers attempting to implement DTC models have faced legal challenges and opposition from dealer associations. For instance, Scout Motors, an electric vehicle manufacturer backed by Volkswagen, plans to sell vehicles directly to consumers. This approach has led to legal challenges from dealer groups who argue that such practices violate state franchise laws and undermine the traditional dealership model.  How would Chinese manufacturers navigate these same challenges?

The good news is that Chinese imports are not headed to the U.S. in the immediate future.  EVs haven’t taken hold with Americans, though Chinese vehicles are being manufactured in Mexico and there’s no confusion about EVs being the future of transportation.   Over time, it’s likely that China will comply with all the current obstacles.  Simply stated, the U.S. market for vehicle sales is too large for China to ignore, though global demand for Chinese vehicles is enough to keep them occupied on other markets for the moment.  This story is still in motion, but something for everyone in the industry to keep their eyes on.

About the Author

Sean Reyes Chief Marketing Officer sean@recallmasters.com

Sean Reyes oversees all marketing efforts at Recall Masters as Chief Marketing Officer. Sean also serves as the host of the FixedOps UX, a “minicast” that revolves around the fixed operations ecosystem and the tactics that build a better user experience for customers, dealership staff and other stakeholders. Sean’s experience spans more than 35 years of business development and strategic marketing experience, having developed go-to-market products and solutions for the automotive, healthcare, insurance, finance and technology industries to serve Fortune 1000 clients like American Express, Toshiba, Western Digital, Cox Communications, Novartis, Microsoft, IBM, Compaq, HP, National General Insurance, MyCustomer Data, DigniFi and several automotive affiliates and dealerships. Sean lives in Napa, CA with his wife Kathryn and spends his free time hiking, kayaking, playing guitar, going to concerts, rebuilding project cars and helping his kids embark on adulthood.