The United States has introduced new rules on tax credits for electric vehicles that could significantly impact China's dominance in the automotive industry of the future.
Friday's announcement by the U.S. Treasury Department will limit federal tax credits offered to consumers if they purchase an EV made with batteries manufactured by a Chinese firm.
The partial restriction, which leaves some room for American companies to work with component suppliers in China, was a deliberate step to prevent Chinese carmakers from benefiting from billions of dollars under President Joe Biden's Inflation Reduction Act.
China exports more than 80 percent of the world's solar cells as well as half of all lithium-ion batteries consumed annually, according to an analysis last month by the London-based nonprofit China Dialogue. Estimates suggest the country dominates around a quarter of the global EV industry.
The Biden administration's new requirements for claiming tax credits sought in part to reduce China's lead by making certain choices less palatable to the U.S. market. Meanwhile, Biden also wants to ensure that half of all new passenger vehicles sold in the U.S. are electric by 2030.
"Americans could have a harder time finding electric vehicles that qualify for a full $7,500 federal tax credit" under the new rules, The Associated Press reported over the weekend.
The guidance explicitly targets companies associated with countries including China, North Korea, Russia and Iran.
"The law defines that as any company owned by, controlled by, or subject to the jurisdiction of North Korea, China, Russia or Iran, although the main target is China," the AP said.
The U.S. is locked in a geopolitical and geoeconomic battle to control emerging technologies, which include the next generation of EV components and the raw materials used to make them.
China's Commerce Ministry recently imposed new export controls on certain graphite products in an apparent pointed riposte directed at U.S. restrictions on high technology. Graphite is critical in the production of lithium-ion batteries with both commercial and military applications.
The U.S. has been actively working to diversify its vulnerable supply chain and reduce its reliance on China, with Washington's latest announcement a possible retaliatory step.
However, a notable provision in the new rules does offer some relief to American carmakers with Chinese connections—so long as they ensure majority control over their projects and guard against intellectual property theft.
"Chinese companies that set up operations outside China appear to be able to benefit from the rules as long as the Chinese government is not a significant shareholder," The New York Times said.
"That provision came as a relief to some automakers, which feared that the Biden administration might bar them from contracting with Chinese-owned mines or factories in the United States or other parts of the world," the paper said.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Aadil Brar is a reporter for Newsweek based in Taipei, Taiwan. He covers international security, U.S.-China relations, and East Asian ... Read more
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