The US is tightening its rules on Chinese technology, ownership and supply chains. European automakers are increasingly being drawn into the dispute. Mercedes-Benz shows how decisions that once made economic sense can become geopolitical liabilities. As Washington and Beijing pull further apart, Europe’s room to stay between them is shrinking.
From Chinese Products to Chinese Ownership
The trajectory of US regulation in this space is worth following carefully. In early 2025, the Biden administration finalised rules restricting connected vehicle software developed by Chinese companies, with enforcement beginning for 2027 model year vehicles from March 2026. The rules targeted the software layer: navigation systems, telematics, remote access functions — the data-transmitting infrastructure embedded in modern vehicles.
The Senate bill goes further. It shifts the frame from what a car contains to who owns the company that makes it. Under this logic, a German car engineered in Stuttgart and assembled in Alabama could still fall under the restriction. That could happen even without explicitly Chinese-branded components if the manufacturer’s shareholder register includes a Chinese entity above a defined threshold.
This is a significant conceptual escalation. The earlier rules addressed a specific technical concern: that Chinese-developed software might create surveillance vectors or security vulnerabilities in vehicles operating on American roads. The ownership threshold addresses a different concern: Chinese capital in a foreign company can create influence. That influence can eventually shape the company’s technology decisions. Whether that concern is proportionate to the risk is debated. That the United States is acting on it is not.
Volvo, Polestar, and the Geely Problem
Mercedes is not the first European brand to navigate this terrain. Volvo Cars, owned by China’s Geely Holding, faced exactly this challenge when US connected vehicle rules came into force. In May 2026, the US Commerce Department granted Volvo approval to continue importing connected vehicle technology — an individual authorisation that allowed the company to keep selling in America while compliance details were negotiated.
That approval exists because Volvo sought it and received it. It represents a workable path for now. But if the Senate bill passes in something close to its current form, the question of whether Geely’s ownership of Volvo triggers the 15% threshold could reframe the entire situation. Volvo’s individual approval would not necessarily survive a categorical ownership restriction.
Polestar, the EV brand with deep Geely ties, faces the same potential exposure. Polestar has been building its American presence precisely as the Chinese EV market has become more competitive and less profitable for Western brands. The United States is where Polestar needs to grow. The Senate bill creates uncertainty about whether it can continue doing so without restructuring its ownership or supply chain relationships in ways that may not be commercially practical.
The Battery Layer
The bill’s reach extends beyond vehicle ownership to components. Provisions targeting Chinese-manufactured batteries and battery systems — with CATL specifically in focus — mean that European automakers sourcing battery cells from China could find those supply relationships becoming a US market access issue.
This matters because the European electric vehicle industry is substantially dependent on Chinese battery supply chains. CATL supplies BMW, Volkswagen, Mercedes, and Stellantis, among others. The technical quality and cost efficiency of Chinese battery production have made it the default choice for European manufacturers scaling EV production. Replacing that supply chain is not a short-term project. It requires years, significant capital investment, and the development of European or American battery manufacturing capacity that does not yet exist at the required scale.
The gap between declaring supply chain independence and achieving it is vast. The battery situation follows the same logic: the political pressure to decouple is real, the industrial capacity to do so quickly is not.
Robots and Inverters: The Wider Pattern
The vehicle bill does not stand alone. On 28 July, the Trump administration announced restrictions on Chinese-manufactured humanoid robots, quadrupedal robots, and connected power inverters — including products from Huawei and Sungrow. The stated concern in each case runs along the same lines: data collection, potential surveillance, and the security of critical infrastructure.
The pattern across these announcements describes a coherent strategic logic. The United States is treating connected technology — anything that processes data, communicates with networks, or integrates into infrastructure — as a security category rather than a trade one. Cars, energy inverters, industrial robots: each of these is, in the American framing, a potential vector for Chinese access to sensitive systems.
The implication for European companies is significant. A European firm whose products contain Chinese components, Chinese software, or Chinese investment above a given threshold may increasingly find that US market access depends on making technology and ownership decisions that are, in practice, decisions about geopolitical alignment.
Mercedes in the Middle
Mercedes’s specific situation illustrates the bind with particular clarity. The company is simultaneously experiencing a sharp decline in its most important growth market — China sales fell 30% year-on-year in the second quarter of 2026 — and now faces potential complications in its strongest performing market, the United States. The company cut its full-year forecast in late July. Its North American sales have been among the few genuine bright spots.
This is the European automotive industry’s geopolitical problem rendered at the level of a single company: dependence on China for both sales and supply chains, now combined with US regulatory pressure that treats Chinese ownership as a risk category. The middle ground — being present in both markets, sourcing globally, staying above the fray — is becoming harder to hold.
As explored in The End of Peak Globalisation, the post-Cold War model of global supply chains optimised for efficiency is giving way to one structured around geopolitical alignment. For European automakers, that transition is no longer an abstract strategic challenge. It is a legislative timetable with a Senate committee schedule.
Key Sources
- Reuters – US Senate Panel Approves Bill Cracking Down on the Sale of Chinese Vehicles
- Reuters – Volvo Cars Wins US Approval to Keep Importing Vehicles with Connected Car Technology
- Reuters – Trump Administration Bans New Chinese Humanoid Robots to Protect US AI Buildout
- Reuters – Senate Committee to Vote on Bill to Tighten US Ban on Chinese Vehicles
- Financial Times – Mercedes Risks US Sales Ban Under Senate China Bill
- Financial Times – Mercedes-Benz Cuts Annual Forecast Amid China Slump
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