Sunday, May 19, 2024
NewsThe U.S. Relaxes Rules on EV Materials as it Imposes Higher Tariffs...

The U.S. Relaxes Rules on EV Materials as it Imposes Higher Tariffs on China

Electric vehicles will now be eligible to U.S. incentives even if their battery contains materials from China, but Chinese EVs will face much higher tariffs.

  • The Biden Administration has modified the Inflation Reduction Act to allow tax credits for EVs that use some minerals from China.

  • Instead, the government will impose stronger tariffs on electric vehicles and EV parts from China.

  • This is to fight against Chinese subsidies that the U.S. says are giving an unfair advantage to these products globally.

China is a major player in the global EV market and many believe it threatens the American auto industry due to the artificially low prices of its vehicles and its stronghold of key battery materials.

The main point of contention for the Biden Administration is that the Chinese government generously incentivizes EV production, which allows local automakers to sell their products at a much lower cost compared to Japanese, European, or American companies.

Since the U.S. government considers these unfair business practices, it will impose much larger tariffs that will make Chinese electric vehicles uncompetitive on the American market.

Indeed, while there are already 27.5% tariffs on completed EVs from Chinese companies, these will increase to 102.5% later this year, more than doubling the price of the affected vehicles.

In addition, tariffs will also be increased from 25% to 50% on semiconductors and solar cells, and from 7.5% to 25% on steel and aluminum, lithium-ion batteries as well as battery parts.

Brand new 25% tariffs will also be added on graphite and permanent magnets as well as other critical materials that are used in EV batteries.

These tariffs will be implemented in stages over the next three years.

Since very few Chinese vehicles are currently imported to the United States, these tariffs will only apply to about $18 billion in imports, which should only raise inflation by 0.01% according to a study by Oxford Economics.

This announcement comes about two weeks after the Biden administration eased the Inflation Reduction Act’s requirements for U.S. or allied-sourced minerals.

Indeed, electric vehicles will now be eligible for federal incentives until 2027 even if their manufacturer has not been able to certify that no mineral used in the manufacture of the battery comes from “nations of concern”, which include Russia, Iran, and most importantly, China.

This change is the result of pushback from automakers who claim that it is nearly impossible to trace some minerals, such as graphite, back to their source.

Critics say that this sends mixed messages since easing these restrictions will allow China to keep profiting from the American EV market.

The Biden Administration claims that this modification is necessary to allow domestic automakers time to create their own supply chain that won’t be dependent on China in the years to come.

Unsurprisingly, the U.S. Chinese embassy disapproves of the new tariffs, saying that they are in violation of global trade rules and that they will slow down the transition away from fossil fuels.

Source: Automotive News and CBC News

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