The South Korean government held a public-private response meeting on Tuesday to address a proposed U.S. rule that would ban the sale or import of connected vehicles — cars equipped with internet connectivity and external communication systems — containing certain hardware and software linked to China and Russia. The U.S. rule would impact key technologies such as the Vehicle Connectivity System and Automated Driving System, which are critical for external communications and autonomous driving.

The rule, if implemented, could disrupt supply chains for South Korean automakers that rely on Chinese components. South Korea’s automotive sector relies heavily on Chinese suppliers for critical technologies. However, the rule allows phased implementation, with restrictions on software starting in 2027 and hardware in 2029, providing companies time to adapt.

WHY IT MATTERS

The proposed U.S. rule poses significant risks for South Korea’s automotive industry, particularly those companies that depend on Chinese technology critical for external communications, navigation and autonomous driving features.

While the phased implementation gives automakers time to diversify their supply chains, failure to do so could jeopardize South Korean automakers’ ability to compete in the U.S. market. However, the Chinese foreign ministry has criticized the proposed U.S. rule, accusing Washington of “overstretching the concept of national security” and pledging to defend its firms. 

South Korean companies will need to accelerate their efforts to secure alternative suppliers. However, this will be challenging, given South Korea and China held high-level meetings last month to enhance cooperation on supply chains. Moreover, the transition will be neither easy nor inexpensive. The cost of shifting supply chains and finding secure alternatives will likely be costly, given China’s dominance in the sector.