November 22, 2024 | Washington Examiner

Trump administration should target Chinese car manufacturers active in Iran

November 22, 2024 | Washington Examiner

Trump administration should target Chinese car manufacturers active in Iran

When President-elect Donald Trump returns to the White House, the return of “maximum pressure” is likely. During Trump’s first term, as sanctions took their toll on the Islamic Republic of Iran’s economy and hard currency reserves, Tehran found an ally in Beijing. China continued trading with Tehran and helped it circumvent U.S. sanctions. However, Beijing’s support was opportunistic rather than altruistic. It leveraged its assistance to Tehran to help China tighten control over critical sectors of Iran’s economy, including the automotive industry. Now, as Trump returns, his administration should target precisely those industries, such as auto manufacturing, where China built up control.

Iran’s automotive sector is one of the country’s most important industries. Nearly a million Iranians work across manufacturing, parts production, and related services. At its peak in 2011, the industry produced almost 1.6 million vehicles annually. However, sanctions enforcement reduced production due to Iran’s reliance on foreign parts and technology. By 2013, production had dropped by more than half from its high just two years previously. Production rebounded to 1.5 million vehicles in 2017 but again halved as Trump ratcheted up sanctions. The Biden administration’s more relaxed enforcement of sanctions led to another rebound. Iranian car manufacturers produced over 1.3 million vehicles in 2023.

Historically, European firms such as Peugeot and Renault dominated Iran’s automotive industry, alongside smaller contributions from Hyundai, Mazda, and Daewoo. U.S. sanctions gradually forced Western companies to exit the Iranian market. From Tehran’s vantage point, the domestic automotive industry not only provides employment and offers prestige but also reduces Iran’s foreign currency use by limiting the need to import new vehicles. From the consumer standpoint, though, the pride has come at a cost as Iranians can only acquire overpriced, low-quality cars.

Chinese manufacturers sought to thread the needle. While Chinese companies first exported assembled vehicles and parts to keep the Iranian manufacturers afloat, they quickly established joint ventures with Iranian manufacturers to produce cars in Iran. Currently, Chinese partnerships account for one-fifth of all vehicles produced in Iran.

Several Chinese firms now partner with Iranian companies. Chery, a state-owned firm active in over 100 countries, exported over a million cars in 2023. Chery’s Iranian partner, Modiran Khodro, is now the country’s third-largest car manufacturer. In 2023, Modiran produced 148,000 vehicles, a 60% increase from the previous year.

JAC Motors, another state-owned Chinese company, has also cemented its presence in Iran. Established in 1964, JAC exported 170,000 vehicles in 2023. Its Iranian partner, Kerman Motor, shifted from partnership with Hyundai to JAC after Hyundai departed Iran. In 2023, Kerman Motor produced 70,000 vehicles, marking a 50% year-over-year increase. The Kerman deal also puts Chinese companies in the orbit of the Islamic Revolutionary Guard Corps. The Mola al Movahedin Charity owns both Kerman Motor and Mahan Air. In 2011, the U.S. Department of the Treasury sanctioned Mahan for its role in transporting men and equipment for the Quds Force.

After Mazda left Iran, Bahman Group, Iran’s fifth-largest car manufacturer, turned to China, partnering both with Chery and the Dongfeng Motor Corporation, one of China’s “Big Four” car manufacturers. Initially working with Iran Khodro and Saipa, Dongfeng now collaborates with Bahman. Arian Pars Motor, the sixth-largest car manufacturer in Iran, also produces Dongfeng’s T5 EVO under the brand name EAMA. While Chinese companies limit their engagement with state-owned giants such as Saipa and Iran Khodro, Chinese companies are likely to expand their footprint when sanctions lift.

However, Chinese automakers do have an Achilles’ heel. The same Chinese automakers that work in Iran have a global presence and operate joint ventures with major brands such as Nissan, Volvo, Honda, Peugeot, and Citroen.

The return of maximum pressure policies presents an opportunity for the U.S. Treasury Department to target these firms. By leveraging the threat of secondary sanctions, the United States can pressure Chinese companies to sever ties with Iran. Given the scale of their global operations, firms such as Dongfeng, Chery, and JAC have much to lose by continuing to work in Iran.

To implement this strategy, the incoming administration must take two steps. First, it should designate Iran’s top six car manufacturers — Iran Khodro, Saipa, Modiran Khodro, Kerman Motor, Bahman Group, and Arian Pars Motor — under existing sanctions targeting the automotive sector.

It should then issue a formal warning to Dongfeng, Chery, and JAC to provide them a three-month window to wind down their partnerships with Iranian firms or face direct sanctions.

By targeting Iranian manufacturers and their Chinese partners, the U.S. can disrupt a critical sector of Iran’s economy, reinforce the effectiveness of maximum pressure policies, and curb China’s appetite and ability to undermine U.S. sanctions.

Saeed Ghasseminejad, Ph.D., is a senior Iran and financial economics advisor at FDD specializing in Iran’s economy and financial markets, sanctions, and illicit finance. Follow him on X @SGhasseminejad.

Issues:

Issues:

China Iran Iran Sanctions Sanctions and Illicit Finance