China’s Auto Parts Makers Muscling In; One Raided By Homeland

China’s Auto Parts Makers Muscling In; One Raided By Homeland

The central planners in Beijing know that countries with a native auto industry are among the most industrially powerful in the world:  The U.S., Japan, Germany, France and the latest newcomer beginning in the 1980s – Korea.  No country has really added new players to the list of global auto brands – until China.  

Gone are the days when your average Chinese worker rode a bike to work. Global automakers envisioned these workers trading in their two wheels for four, with power steering and anti-lock brakes. They partnered with Chinese companies to establish joint ventures, setting up manufacturing plants and selling cars locally.

These joint venture partners were fast-tracked into learning how to make Western cars.  These ventures spawned their own supply base of Chinese components suppliers and subcomponent suppliers (commonly referred to as Tier I and Tier II suppliers in industry lingo).  Chinese companies subsequently built their own brands, and when they didn’t build, they acquired existing ones, such as Volvo in 2010, which is now majority-owned by Geely, a Chinese automaker.

After a generation of making cars with Western automakers, China has evolved into an electric vehicle (EV) force to be reckoned with.  In 2023, China produced over 30.1 million vehicles, with Chinese-owned brands contributing 21.7 million units. Of these, 9.1 million were electric vehicles. In comparison, the U.S. produced 10.6 million vehicles, including 1.2 million EVs.

They not only possess EV auto brands, but also a tiered supply base producing essential components like steel and aluminum structures, glass windshields, tires, transmissions, interiors, lithium ion batteries and all the other electronics, pumps and pipes that go into an EV.  

The stated aim of the Made in China 2025 industrial policy is to elevate new energy vehicles and nine other critical industry sectors to global powerhouse status.  Similar to its strategy with solar panels – from the production of polysilicon to ingots, solar wafers and finally solar panels – Chinese state-sponsored industrial expansion in the EV industry seeks to control the entire value chain.  

According to a forthcoming Center for Strategic and International Studies report, the Chinese EV industry including the tiered supply base received over $140 billion in direct subsidies between 2009 and 2021, not including tax deductions, public procurement, land provision, cheap energy and low-interest loans.  Coupled with IP appropriation and import protection from competition, these measures have enabled manufacturers across China’s EV value chain to realize technical competency, unmatched economies of scale, oversized capacity and the ability to offer product at artificially low costs.

When traditional car makers come under increased pressure from Chinese EV manufacturers, as we’ve seen in the news recently, it logically follows that the traditional automotive parts manufacturers face equivalent challenges from their Chinese counterparts. While competition at this next level might not grab as many headlines, the economic impact of such competition is equally subversive to the health of the overall auto industry.   

In 2023, the global Tier One auto parts supplier industry generated $1.9 trillion in revenue, and the global auto aftermarket parts industry generated $700 billion. The U.S. market comprises approximately 25% of each, representing $650 billion in annual revenue.

A Chinese Auto Parts Supplier Gets ‘Invaded’ by Homeland

On January 2024, the Department of Homeland Security (DHS) raided the Moraine, Ohio-based subsidiaries of Chinese auto parts supplier Qingdao Sunsong. This action followed a letter sent to Homeland Secretary Alejandro Mayorkas on September 29, 2023, by the House Select Committee on the CCP.

From that letter:

Qingdao Sunsong—a company based in the People’s Republic of China (PRC)— and its U.S.-based subsidiary, Sunsong North America, are circumventing Section 301 tariffs by transshipping their products with limited transformation through Thailand to the United States. Reviews of Qingdao Sunsong’s public disclosures lay out a case of blatant trade fraud that is having a catastrophic impact on American manufacturers.

The House Select Committee accused Sunsong of transshipping its Chinese products through its subsidiary in Thailand to avoid paying U.S. tariffs, enabling it to offer pricing far below fair-market rates.

Qingdao Sunsong, along with its U.S. subsidiaries, Harco and Sunsong North America, is a Chinese auto parts supplier of rubber hose assemblies, crucial for both traditional, gas powered vehicles and EVs. Key applications include hose assemblies for brakes, power steering and air conditioning.

Sunsong generates approximately 40% of its revenue from U.S. sources – with three of its top five global customers being GM, O’Reilly Auto Parts and AutoZone.  While Sunsong’s penetration into the U.S. Tier One industry has been relatively static since its market entry with the acquisition of Harco, Sunsong’s impact on the local auto aftermarket has been significant.  Its growth has been organic and fast, a common pattern for Chinese companies in the auto aftermarket where less formal barriers to entry exist.

If the Homeland investigation’s outcome goes against Sunsong, it faces potential civil charges under Section 592 of the Tariff Act of 1930, amounting to up to the full domestic value of the goods involved for each year fraudulent transshipment occurred. Additionally, if executives are found complicit, they could face criminal charges resulting in up to 20 years of imprisonment.

Despite the Select Committee’s public shaming of Sunsong in August 2023, the subsequent letter issued in September, and the raid in January 2024, Sunsong continues to grow U.S. revenue.

Sunsong’s investors appear to have acknowledged the gravity of the U.S. government’s actions. Since the January raid, Sunsong’s stock price has plummeted, reducing its $220 million market cap by more than half over the past four months.

The U.S. auto parts industry is increasingly aware of China’s expanding global footprint. Since the implementation of Section 301 tariffs, countless Chinese companies have rushed to set up foreign subsidiaries throughout Southeast Asia, India, and Mexico to bypass these tariffs. It is impossible to determine how many of these subsidiaries substantially transform products before shipping them to the U.S., rightfully claiming a change in country of origin, versus those committing fraud by falsely claiming such transformations.  However, if the solar panel industry provides any indication, then the number is likely considerable.

Ann Wilson, Executive Vice President of Government Affairs of The Motor & Equipment Manufacturers Association (MEMA), highlighted this issue to the USTR in testimony provided on February 7, 2024.  


Here’s what she said:

“A MEMA member researched a new facility build by its Chinese competitor Qingdao holdings in Thailand. That plant was supposedly producing brake hoses. However, substantial transformation was not occurring, so the MEMA member alleged that transshipment was going on. We hope that Department of Justice is contemplating criminal prosecution of this company.”

MEMA has raised this issue with the U.S. Trade Representative and the Select Committee on China has escalated it to the highest levels of the executive branch. They have focused on the case of Sunsong as it is indicative of a larger endemic problem. Alongside Sunsong is a cohort of suppliers with the same mandate, willing to undermine rules and laws to achieve their goals of becoming global powerhouses.

The Biden administration recently increased tariffs on EV batteries and vehicles imported from China. On May 14, it announced findings from a four-year review of Section 301 tariffs, resulting in some increases while maintaining most existing tariffs.

Chinese companies will continue to exploit illegal activities to undermine American manufacturers and workers, aiming to dominate the automotive industry. To counter that, the U.S. will need to enhance its detection and enforcement mechanisms across the automotive supply chain in order to prevent the kind of harm that has been seen in the solar panel industry.

The challenge will only become more complex as Chinese car companies, including parts manufacturers, set up shop in Mexico, which is the leading source of cars imported into the U.S.


CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.

The latest CPA news and updates, delivered every Friday.


Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.