By David Shepardson

WASHINGTON (Reuters) -The Commerce Department said Friday that U.S. auto sales could drop by up to 25,841 vehicles a year and prices rise if proposed rules go ahead that would ban Chinese vehicles that connect to the internet and key Chinese software and hardware.

U.S. automakers and others selling in the United States "may be less competitive in the global market because of the relatively higher prices of their vehicles," the department said. It estimated between 1,680 and 25,841 fewer vehicles would be sold annually because of the rule.

Acting to reduce national security vulnerabilities that could be exploited by China, the department estimated the rule could bar $1.5 billion to $2.3 billion in vehicle inputs from Chinese or Russian companies for vehicles sold in the United States.

It said previously that the proposal would amount to an effective ban on Chinese vehicles since all would have internet-connected vehicle software and hardware, but it has proposed a process for companies to seek exemptions.

The Commerce Department proposes making software prohibitions effective in the 2027 model year, while the hardware ban would take effect in the 2030 model year or January 2029. The public has 30 days to make comments before the rules can be finalized.

The Commerce Department said the rules' primary benefit would be "a reduction in the chance of a catastrophic attack due to the exfiltration of data and remote manipulation of connected vehicles."

This week, the department said General Motors and Ford Motor would need to stop importing vehicles to the U.S. from China under the rule.

GM sells the Buick Envision and Ford sells the Lincoln Nautilus -- both assembled in China -- in the U.S. market. In the first half of 2024, GM sold about 22,000 Envisions and Ford sold 17,500 Nautilus in the U.S.

(Reporting by David Shepardson; Editing by Cynthia Osterman)