WASHINGTON–The U.S.’s new tax-break scheme for electric vehicles has drawn angry responses from the country’s key allies in Asia and Europe, highlighting a tension between government support for the domestic automobile industry and courting allies to counter China’s influence.
The European Union, Japan and South Korea say provisions in the U.S. legislation to promote clean energy, signed by President Biden in August, discriminate against their auto makers and might violate World Trade Organization rules that bar treating imported products differently from domestic ones.
Foreign officials warn that the change, which they say was introduced with little consultation with the U.S.’s trading partners, undermines Mr. Biden’s effort to improve economic ties with allies by sharing technology and building supply chains to better compete with China’s manufacturing clout.
“Friendly nations are working together to strengthen supply chains as we speak,” Japan Trade and Industry Minister Yasutoshi Nishimura told reporters recently. “This goes against that broad strategy.”
Mr. Nishimura raised Japan’s concern with U.S. Trade Representative Katherine Tai on the sidelines of the first ministerial meeting of the Indo-Pacific Economic Framework, the core of Mr. Biden’s economic security strategy to engage with friendly nations in the region.
Biden administration officials say they continue to speak with the allies to address their concerns, while working on details of the implementation of the new law.
The European Union’s trade chief, Executive Vice President Valdis Dombrovskis, has complained to Ms. Tai that the new tax credit was detrimental to trans-Atlantic trade, contrary to international trade rules and harming European auto makers that have invested in the U.S.
French Finance Minister Bruno Le Maire said last week that Europe must rethink its electric-vehicle subsidies in response to the new U.S. measure.
Ms. Tai says she will continue to talk to Korea, Japan and the EU about their concerns.
“But the main point is that there is so much space and opportunity for us to collaborate and to cooperate,” she said.
The complex new rules are aimed at promoting EVs to help reduce greenhouse gases and shift EV and battery supply chains to the U.S. and friendly nations and away from China, currently the dominant player.
Sen. Joe Manchin (D., W.Va.), who helped push through the legislation, said the measure aims to “increase energy and national security while also creating more jobs here at home.”
To qualify for up to $7,500 in tax credit, vehicles must go through their final assembly in North America, a requirement that disqualifies most electric vehicles from non-U.S. car makers. That is because they are currently mostly assembled overseas, unlike many of their popular gasoline-powered models built at their North American plants.
The new rules also require EVs to have at least 40% of their critical minerals for batteries sourced in the U.S., or countries that have free-trade agreements with the U.S. starting in 2023. That threshold is set to rise to 80% by 2026.
Vehicles also must have batteries that are least 50% North American content by 2024 and 100% by 2028.
An earlier proposal to award the tax credits only to vehicles built by American union workers was dropped amid outcry from companies with plants in no-union states, as well as countries including Mexico and Canada.
Foreign officials and trade analysts say that the legislation likely violates a WTO rule that prohibits nations from treating imports from some countries worse than domestic products or those manufactured in certain countries (Mexico and Canada in this case). It could also infringe on subsidies rules because the tax benefit is given only to vehicles assembled in North America.
