So far, the Inflation Reduction Act seems to be doing its job: reducing inflation and helping to strengthen the U.S. economy. But some countries aren’t necessarily happy about some of the specifics included in the bill, mainly the
EV tax credit system—and they’re getting pretty vocal about it. China in particular is at the forefront in a line of critics, and they’re threatening to take action. But what, if anything, could China do about the new EV tax credit system?
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What’s China’s problem with the new EV tax credit system?
Bloomberg explains that China is angry due to the fact that the new EV tax credit system excludes EVs with Chinese battery components from qualifying.
This means that China’s hold on the U.S. economy could be significantly weakened, and although the decision hasn’t been labeled illegal or immoral, China believes that it is. The country is currently investigating whether the U.S. is in violation of World Trade Organization principles. But what can China really do?
China could impose similar trade restrictions on the U.S.
China isn’t declaring war against the U.S.—but it could certainly spark something of a trade war between the two countries. At present, China is simply conducting an investigation into the current EV tax credit system; they aren’t done trying to persuade U.S. officials to soften up.
Chinese ambassador to the U.S., Qin Gang, spoke at the Detroit Auto Show last week. His words were vague but hinted that China wished to cooperate with the U.S. “The electric vehicle value chain, or specifically the supply chain, is very globalized,” said Qin.
What will be the lasting effects of the new EV tax credit system?
Besides making China, Russia, South Korea, the E.U., and Japan angry, the new EV tax credit rules will probably force other countries to lessen their dependence on Chinese-produced battery parts and electronics.
Currently, China controls 62% of the
EV battery component market—which isn’t a good thing. Biden’s administration may have upset global leaders, but the U.S. isn’t turning its nose up at Chinese battery components for no reason. Instead, we’re playing the long game, hoping to diversify the EV battery market and supply chain.
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