Policy Changes Impact the Automotive Electronics Industry: EU-US Trade Agreement and US Proposal to Ban Chinese Software/Hardware Draw Attention
August 23, 2025
Recently, the global automotive electronics industry has been affected by two major international policy changes. On August 21 (local time), the White House issued a statement announcing that the United States and the European Union have reached an agreement on the framework of a trade deal, which covers 19 areas including automobiles and semiconductors. On September 23, the U.S. government released a new proposed rule, aiming to ban connected vehicles on U.S. roads from using software and hardware produced in China. These two policy changes have exerted a profound impact on the supply chain and market structure of the automotive electronics industry.In the EU-US trade agreement framework, the adjustments to automobile tariffs and chip-related provisions have relatively significant impacts on the automotive electronics industry. The United States has promised to reduce tariffs on EU automobiles and auto parts from a maximum of 27.5% to 15%, but this is on the condition that the EU “formally submits legislation” to fulfill its commitment to reducing tariffs on U.S. goods. In return, the EU will eliminate tariffs on all U.S. industrial products and provide preferential market access for agricultural products. For major EU automobile-exporting countries such as Germany, if the subsequent legislative process progresses smoothly, the cost of exporting automobiles to the United States will decrease to a certain extent. This will help automobile enterprises alleviate cost pressures to some degree and also have a knock-on effect on the export of automotive electronic components.
In terms of chips, the EU plans to purchase $40 billion worth of U.S. artificial intelligence chips for data center construction. Although this mainly targets the data center sector, from the perspective of the industrial chain, after U.S. chip enterprises obtain a large number of orders, they may increase investment in chip research and development. This will affect the competitive pattern of the global chip industry to a certain extent. For chips used in automotive electronics, U.S. chip enterprises may rely on their advantage of more resources to consolidate their position in the automotive chip market. For example, in the field of advanced-process automotive chips, the gap between U.S. enterprises and those in other regions may widen further. Moreover, although the EU and the U.S. have a two-week buffer period to make independent decisions on details such as chip tariffs, the market expects the emergence of a “graded tariff” system. This will prompt European local chip design enterprises and EU-US technology giants to re-evaluate their supply chain layouts, seek alternative sources with lower costs, or accelerate the regional adjustment of production lines, and the chip supply chain of the automotive electronics industry will also be affected accordingly.
The U.S. proposed rule to ban Chinese software and hardware in connected vehicles has a wide range of impacts. According to the proposed rule previously released by the U.S., the ban on Chinese software and hardware for connected vehicles will take effect in the 2027 model year and 2030 model year respectively. For vehicles without a model year, the ban will take effect on January 1, 2029. The automotive industry conducts division of labor and cooperation on a global scale, and many automakers rely on China for the supply of software and hardware for intelligent connected vehicles. In a document submitted to the U.S. Department of Commerce, Mexico’s Ministry of Economy stated that the proposal may “have a significant impact on Mexico’s automotive industry. Economically, it will create potential trade barriers, trigger supply chain disruptions, lead to higher production costs, and pose risks of reduction in direct and indirect employment.” The Alliance for Automotive Innovation (AAI), which represents major automakers such as General Motors, Toyota, Volkswagen, and Hyundai, has requested that the hardware regulations be implemented at least one year later. The Consumer Technology Association (CTA) of the United States and Honda Motor have demanded that the above-mentioned bans be delayed by two years respectively to facilitate “conducting key testing, verification, and updating necessary contracts.”
From the perspective of the automotive electronics industry, the current development of intelligent connected vehicles is advancing rapidly, and China occupies an important position in both the software and hardware fields of automotive electronics. In terms of software, Chinese enterprises have made numerous innovative achievements in intelligent cockpit systems and vehicle networking software, which are widely used in the global market. In terms of hardware, China’s supply chain also holds a significant share in the global market for some products such as sensors and chips. Once the U.S. ban is implemented, it will force automakers to rebuild their supply chains and seek alternatives to Chinese software and hardware. However, completely replacing key software and hardware from China in the short term not only poses great technical difficulties but may also have an adverse impact on the stability of the global automotive industry supply chain and the pace of innovation. Furthermore, due to China’s advantages in cost and technology in the field of automotive electronics, seeking alternative solutions may significantly increase the costs of automakers, thereby affecting the market pricing and competitiveness of automotive products.
In general, the two policy changes—the EU-US trade agreement framework and the U.S. proposal to ban Chinese software and hardware in connected vehicles—will trigger shocks in the supply chain of the automotive electronics industry in the short term, prompting enterprises to re-evaluate and adjust their supply chain layouts. In the long run, they will reshape the market competition pattern of the global automotive electronics industry and exert an undeniable impact on the development strategies of enterprises in the industry and the global industrial division of labor. All parties are closely monitoring the specific implementation details of subsequent policies and the response measures of the industry.