US Trade Officials Open Talks With EU On IRA Incentives For Electric Cars

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To the surprise of absolutely no one, trade officials from the United States and the European Union plan to hold high level talks designed to defuse tensions over the tax credits for electric cars contained in the recently passed Inflation Reduction Act. That law says certain things must happen before the buyers of electric cars are eligible for the full $7,500 tax credit.

First, the car must be finally assembled in America. Second, the batteries for it must be manufactured in America using materials sourced within America or one of a select few countries. The overall goal of the IRA is to promote domestic production, but a nation can only do so much to help local industries before its actions become protectionism, which is banned by the various trade agreements the world’s nations have entered into over the years as part of the globalization process.

Believe it or not, nations actually give up a bit of their national sovereignty when they join trade groups like the World Trade Organization, which has the right to overrule any nation’s trade policies that conflict with the provisions of those treaties. That is exactly the message trade officials from the European Union want to impress on their American colleagues — fix this or we will haul you up before the WTO and you won’t like what they have to say.

Trade officials from Japan and South Korea are waiting in the wings to press their own demands on the US. In particular, Hyundai and Kia feel particularly aggrieved, as do the Korean battery manufacturers like LG Energy Solutions and SK Innovation.

President Biden’s deputy national security adviser Mike Pyle agreed to launch a task force on the topic during a meeting last week with European Commission president Ursula von der Leyen’s head of cabinet, Bjoern Seibert, according to Reuters.

The task force is designed to “promote deeper understanding” on the “opportunities and concerns for EU producers,” Watson said, and comes after high-level meetings between Biden administration officials and allied countries angered over the new law. European car makers like Volkswagen, Mercedes, and BMW will be affected by the new law because while some of their electric cars are manufactured in the US, not all of them are.

In a statement this week filed with trade officials, Ford said while it “appreciates and supports the overall objective of the law to bolster the localization of battery production and critical mineral mining and processing in the U.S. and with our trading partners and allies, an overly expansive interpretation of this provision risks undermining that very same objective by making the clean vehicle credit largely unavailable.”

According to Reuters, Ford said it wants the Biden administration to ensure joint ventures in critical mineral extraction, processing, or recycling “will not cause vehicles to be automatically excluded.” The company also said any US-organized company, regardless of its owners, should not trigger the foreign entity rules.

General Motors announced this week that it is ready to jump back into the European vehicle market after a 5-year hiatus. It certainly doesn’t want the EU to hang out the “American goods not welcome” sign when it begins shipping products across The Pond.

Trade issues are thorny beasts. In theory, anyone should be able to trade with anyone else, with open competition between brands and companies being the only arbiter of success. The biggest problem for US officials is how to mollify the neighbors without having to go back before Congress to get a new law passed. With the latest polls showing a late surge in favor of reactionaries, throwing this back into the Congress would probably result in a total failure of the clean energy and clean transportation policies promoted by the Biden administration.

Certainly, our leaders must have recognized the Act as passed would irritate some of our closest trade partners, so the push back from Europe, Japan, and South Korea must have been anticipated. The administration has until early next January to fix this. It’s going to be a cliff hanger for sure.