Nov 2025 International Trade Trends: Auto Industry, China & GM Exit Strategy

General Motors to Phase Out Chinese Supply by 2027

General Motors (GM) has issued directives to its thousands of suppliers to end procurement from China by 2027. Launched in 2024, this initiative gained traction in spring 2025. The move is part of a broader GM plan to improve supply chain resilience and lower exposure to geopolitical uncertainties, particularly in the face of fluctuating U.S.–China trade relations. Suppliers are being urged to find replacement sources, preferably within North America, although other global providers meeting regulatory and logistical requirements are also being considered. GM’s decision was driven by concerns about inconsistent tariffs and trade restrictions, Chinese export controls on rare-earth minerals, and semiconductor shortages among other supply chain disturbances. High-ranking GM executives, including CEO Mary Barra and global purchasing head Shilpan Amin, have emphasized that resilience and control have become more critical than cost savings in sourcing decisions.

Decades of Integration: GM and China

Disengaging from Chinese supply may be more complex than it sounds, considering the decades of supply chain integration. GM marked its entry into China’s auto manufacturing sector in the late 1990s, forming a 50-50 partnership with SAIC Motor, resulting in Shanghai GM. The venture began producing Buick sedans and later included Chevrolet and Cadillac models. Through the late 1990s and 2000s, GM established a strong supply chain integration, beginning local parts production to support its growing vehicle assembly operations, covering a wide range of components from electronics and interiors to chassis systems. In 2004, GM deepened its foothold in the local supply ecosystem with a dedicated parts and service division. Between 2009 and 2010, GM markedly increased its global procurement from China due to cost advantages and the country’s expanding manufacturing capabilities. Now, these years of supply chain integration must be undone in response to geopolitical pressures. GM’s strategy aligns with the broader auto industry’s determination to create a more localized supply chain and reduce dependence on China for parts.

China’s Dominance in Critical Components

China holds a firm grip over the production of several critical components, thanks to its large-scale operations, infrastructure, and control over raw materials. Components that are dependent on rare earths, such as electric motors that use neodymium magnets, are a case in point. China controls more than 80% of the global refining capacity of rare earths. This has made China a near-monopolistic provider for traction motors in electric vehicles (EVs), unless automakers choose to source from alternative magnet chemistries or countries. As for battery materials and components, China leads in lithium-ion battery production, including cathodes, anodes, and battery management systems (BMS). Even if cells are assembled elsewhere, many upstream materials can still be traced back to China. Furthermore, China produces a significant share of automotive semiconductors, camera modules, radar sensors, and infotainment systems.

Realities and Challenges of the New Sourcing Strategy

Despite the fact that most parts can technically be produced elsewhere, including in the U.S., Mexico, Germany, Japan, and South Korea, relocating production implies higher costs, extended timelines, and the need to establish new supplier networks. GM and Tesla are investing in North American battery plants and rare earth processing to reduce reliance on China. However, these alternatives are not easy to scale rapidly, given the decades of investment required to build the integrated ecosystems in China. China’s advantage of offering raw materials, processing, and assembly in one region presents an attractive package for logistics and trade flow. Even with changing tariffs, Chinese parts often remain cheaper than Western alternatives.

Possible Alternatives to China

Several countries are stepping up to the plate as potential replacements for China. Vietnam, Mexico, and India are making gains in basic electronics and trim, while South Korea and Japan excel in high-end semiconductors and battery tech. The U.S. and Canada, with investments in rare earth processing, lithium mining, and EV battery plants, are emerging as alternatives. Mexico is an attractive option for North American automakers due to its close proximity, cost-effectiveness, and quick scaling potential.

USMCA Compliance and GM’s Major Suppliers

The United States–Mexico–Canada Agreement (USMCA) mandates that 75% of a vehicle’s components should be made in North America to qualify for tariff-free trade. The recent USMCA data indicates that 40–45% of automotive parts production across the USMCA region happens in the United States, 35–40% in Mexico, and 15–20% in Canada. The USMCA has influenced automakers to rebalance their supply chains toward the U.S. and Canada while preserving Mexico’s cost advantages. Among GM’s thousands of global suppliers, prominent companies include Bosch, Magna International, Denso, Lear Corporation, ZF, Aptiv, and Continental, which provide key components from electronics and powertrains to seating and safety systems.

GM’s China Exit Strategy: Implications for Suppliers

GM’s major suppliers are expected to feel the impacts of its China exit strategy by 2027, though GM usually accounts for less than 5% of each major supplier’s global revenue. The relocation of production of crucial components to North America could potentially involve billions of dollars. The necessity to comply with USMCA and the Inflation Reduction Act rules for tax credits and tariff exemptions adds to the complexity of GM’s ambitious plan. Reuters recently reported that Tesla, like GM, is directing its suppliers to exclude China-made components from vehicles built in the U.S., with an aim to complete this transition in the next one to two years.