China’s automakers could be among the surprising beneficiaries of United States President Donald Trump’s trade war as a 25 percent tariff on imported vehicles and auto parts takes effect on Thursday, analysts say.
The White House has argued the tariff is necessary to protect the US auto industry and strengthen the country’s industrial base and supply chains.
The US last year imported $475bn worth of auto parts, engines and vehicles, according to the Bureau of Economic Analysis, primarily from Mexico, Japan, South Korea, Germany and Canada.
China’s presence in the US auto industry has been limited since Trump launched his first trade war in 2018 and imposed tariffs on $380bn worth of Chinese goods.
Chinese-made “light vehicles” – cars, vans, and motorcycles – represented only 0.4 percent of light vehicle sales in the US in 2024, according to JATO Dynamics, an automotive market research firm.
This limited presence is largely due to low brand recognition in the US for Chinese automakers and a 100 percent tariff imposed last year by former US President Joe Biden.
Starting in 2027, the US will also ban the sale of any Chinese-made “connected vehicle” hardware or software on alleged national security grounds.
These systems, commonly found in EVs, allow vehicles to exchange data via Bluetooth, Wi-Fi or satellite.
Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, said Chinese automakers are less immediately affected by the US tariffs than their global competitors, which could give them a long-term advantage.
“With European, Japanese and South Korean brands financially burdened by the US market, Chinese brands now have weakened competitors. The cost of doing business in the US will hurt every automaker in that market, but Chinese automakers don’t rely on the US for significant revenue,” Fiorani told Al Jazeera.
Chinese automakers could also benefit as their competitors face higher costs due to the tariffs, potentially making them more cost competitive in other markets, Fiorani said.
The benefits will be most apparent in the EV market, according to experts, even as they remain locked out of the US.
China dominates both EV manufacturing and battery production, and last year its EV powerhouse BYD surpassed Elon Musk’s Tesla in annual global revenue thanks to strong domestic sales.
China is also home to six of the world’s top 10 EV battery manufacturers.
While Trump’s tariffs are expected to have a limited impact on Tesla, which relies less on foreign parts, experts say they will harm would-be competitors to BYD like South Korea’s Hyundai, Japan’s Nissan, and Germany’s BMW and Mercedes.
Tu Le, the founder and managing director of Sino Auto Insights, said Trump’s tariff policies and push to onshore manufacturing in the US could make American brands less competitive in the long term, ultimately benefitting China.
“The reality is, if things continue as they are for the US auto industry, it could be uncompetitive in four years. Instead of investing in clean energy or charging infrastructure, they are focusing on bringing factories back to the United States,” Lu told Al Jazeera.
However, Chinese auto parts suppliers could suffer greater fallout from the tariffs than automakers due to their higher exposure to the US market, according to Nick Marro, principal economist for Asia at the Economist Intelligence Unit.
“Chinese carmakers don’t sell much in the US, especially due to high tariffs on electric vehicles, which Chinese brands tend to dominate. However, Chinese auto part manufacturers have historically seen the US as a major market,” Marro told Al Jazeera.
“If disruptions occur, it would likely affect the intermediate components part of the supply chain, which could have cascading effects on the final assembly of US vehicles.”
A significant question surrounding Trump’s auto tariffs is how they will affect Chinese and other foreign manufacturers that have relocated to Mexico to take advantage of the United States-Mexico-Canada Agreement (USMCA) and proximity to the US border.
Following Trump’s 2018 trade war with Beijing, many Chinese manufacturers moved operations to Southeast Asia and later Mexico to avoid tariffs.
As a result, Mexico’s trade with the US has surged, surpassing China to become the US’s top trading partner in 2023.
In 2024, Mexico supplied more than 40 percent of US auto parts, but many originated from Chinese factories that established operations there over the past eight years.
While the Mexican and Canadian auto industries will receive some exemptions from Trump’s 25 percent tariffs thanks to the USMCA, the EIU’s Marro said that Mexico City is expected to reassess its Chinese manufacturing base as it tries to negotiate down additional tariffs.
During his presidential campaign last year, Trump incorrectly claimed that Mexico allowed Chinese automakers to build factories to ship finished vehicles to the US without paying taxes.
The issue remains a point of contention, particularly after Trump’s return to the White House in January.
The Financial Times, citing people familiar with the matter, reported last month that Mexico’s Ministry of Commerce had been delaying approving a BYD manufacturing facility due to concerns smart car technology could make it across the US border.
Tu Le from Sino Auto Insights said some Chinese companies might seek permission to set up manufacturing in the US.
“I think there is going to be a huge opportunity for Chinese automakers to negotiate a way to build in the United States. I think the Trump administration might see that there is investment happening in the EU,” he said.
Such a development would follow similar moves by other Asian carmakers, such as South Korea’s Hyundai, which recently announced a $21bn investment in the US ahead of the tariff deadline.
Ilaria Marzocco, a senior fellow specialising in Chinese business and economics at the Center for Strategic and International Studies (CSIS), said prospects for Chinese automakers remain uncertain due to current restrictions on “connected vehicles” imposed by the Bureau of Industry and Security in January.
“I think many people are speculating about a deal where Chinese automakers invest in the US. But aside from the politics, which are challenging, the current connected vehicle restrictions would make it very difficult,” Marzocco told Al Jazeera.
