Trade Tensions Spark: In a recent development, the Biden administration’s announcement of plans to restrict Chinese content in electric vehicle (EV) batteries has elicited strong reactions from China, asserting that such measures violate international trade norms. The proposed regulations, set to make investors in the U.S. EV supply chain ineligible for tax credits if they incorporate more than a trace amount of critical materials from China or other designated “Foreign Entities of Concern” (FEOC), have been deemed non-market-oriented and discriminatory by Chinese authorities.
He Yadong, a spokesperson for China’s commerce ministry, criticized the U.S. policy, stating, “Targeting Chinese enterprises by excluding their products from a subsidy’s scope is a typical non-market-oriented policy.” He further emphasized that numerous members of the World Trade Organization (WTO), including China, have expressed concerns about the discriminatory nature of the U.S. policy, which is perceived to violate the basic principles of the WTO.
China holds a significant position in the global battery supply chain, prompting concerns in the United States and Europe that an influx of cheap Chinese EVs could flood their markets. The European Commission is currently conducting an investigation into whether Chinese manufacturers benefit from unfair state subsidies.
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In response to these concerns, the U.S. has already enacted two laws that explicitly exclude investors from benefiting from tax credits and subsidies if their supply chains include materials from FEOCs, which include China, Russia, North Korea, and Iran.
These regulations are scheduled to take effect in 2024 for completed batteries and 2025 for critical minerals. Additionally, the Biden administration is proposing stringent criteria, including a 25% ownership threshold, to determine if a company is controlled by an FEOC.
He Yadong warned that the U.S.’s plans to establish “glass barriers” would adversely impact the development of EV technologies and the industry as a whole. He emphasized that these measures would “seriously disrupt international trade and investment.” China, accounting for a significant share of the world’s lithium processing and cobalt capacity – essential components in battery manufacturing – stands at the center of these trade discussions.
While the U.S. and EU justify these measures as safeguards against potential risks, some industry analysts question whether the perceived threats align with the scale of actions taken and the rhetoric surrounding them. Dan Marks, a research fellow for energy security at the Royal United Services think tank, suggested that these strategies are essentially industrial strategies aimed at fostering competitive industries capable of thriving in the evolving landscape of electric vehicles.