Making North America, Europe more competitive with China no easy task, experts say

DETROIT — Making the North American and European auto industries more competitive with their counterparts in China is an immensely complicated task, industry experts said at the Automotive News Congress.

In North America, tariffs and proposed rules banning Chinese-made hardware and software won't keep automakers from China out of the market indefinitely but could buy companies in the region time to become more competitive with them, participants in a panel discussion said during the event in Pontiac, Mich.
"This industry here in the United States should not think that this is going to be here forever," said John Bozzella, CEO of the Alliance for Automotive Innovation. "Then the question is, what will we do with our time?"

The U.S. Commerce Department on Sept. 22 proposed rules that would ban Chinese- and Russian-made hardware and software for connected vehicles by 2027. The news came after the Biden administration implemented a 100 percent tariff on Chinese electric vehicles.

The moves are aimed at addressing national security concerns and boosting the competitiveness of the North American auto industry in the face of the threat of imported, inexpensive Chinese EVs flooding the market.

The actions are unlikely to keep Chinese automakers out of the region for long, as companies such as BYD eye Mexico as a location to open an assembly plant, AutoForecast Solutions CEO Joe McCabe said. But they do give companies in the region the ability to become more competitive by building back brand loyalty and addressing issues such as range anxiety and the high cost of new EVs, he said.

"This gives us time for manufacturers to not be complacent," McCabe said. "If you build here, get competitive."

The North American industry cannot directly compete for long with the enormous subsidies Chinese automakers receive from their government, but tariffs and federal incentives provide the region with an "amazing buffer" to create more products that can go toe to toe with them, said Kate Kalutkiewicz, senior managing director at McLarty Associates.

"The appetite will not be there forever in Washington as these dollar amounts continue to go up, but this is a critical moment in the future of the sector," she said.

Industry competitiveness, offshoring of manufacturing to Mexico, and Chinese EV imports are expected to be major topics of discussion in the lead-up to the 2026 midterm review of the United States-Mexico-Canada Agreement free trade pact.

The three countries are tasked with deciding by July 1, 2026, whether they want to continue with the agreement for 16 more years or enter into annual reviews of the deal until it expires in 2036. The U.S., regardless of who wins November's presidential election, could use the review as leverage to get Mexico to agree to block Chinese manufacturers, though the agreement is not designed to specifically address the issue of Chinese offshore manufacturing.

"Dealing with that on a trilateral basis, they probably have a better shot than any other regional partnership in the world," Adam Hersh, a senior economist at the Economic Policy Institute think tank, told Automotive News. "But it will make for complicated politics."

Compare that with managing the politics of the 27-nation European Union, which was considering tariffs as high as 35.3 percent on Chinese imports, he said.

"Europe has to make decisions as a bloc, and as we know, different member states and different industries all will have very different views on this," Kalutkiewicz said. "We will have tariffs out of Europe, for sure, but it will not be anywhere near what the United States and Canada have done."

Some analysts said the proposed European tariffs might not do much to blunt the flow of Chinese vehicles into the market.

Europe, in many ways, handcuffed itself on this issue because of the importance of the Chinese market to many companies in the region, McCabe said.

"They're so interconnected with all their partnerships there that you can't give a 100 percent tariff because you're going to damage your brand in China," he said.