The US Treasury Releases Guidelines For Subsidizing Electric Cars

This guidance came as a result of the US Treasury Department's eagerly anticipated move to clarify the eligibility requirements for the tax subsidies for electric vehicles provided by the Inflation Reduction Act.

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As the biden administration unveiled its comprehensive 61-page proposal on Friday, with implications for Europe and China, as well as for the $32 trillion international commerce arena, it marks a crucial moment for the administration's trade agenda.

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In conclusion, consumers can benefit from up to $7,500 in federal tax credits if they purchase a clean-energy vehicle that is certified to meet certain US rules regarding critical minerals and battery components, as well as meet certain emissions standards.

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Essentially, the new rules aim to dilute China's control over raw materials such as lithium, cobalt, nickel, and magnesium, which are some of the most important ingredients for motors and batteries, and dilute Chinese power over the world's markets in them.

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There are currently more than two dozen countries - including Canada, Mexico, and Japan - who are eligible for tax credits as a result of their free trade agreements with the United States, and Treasury has allowed them to take advantage of the exemptions.

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You may be wondering why the list does not include the European Union, where car manufacturing giants such as Volkswagen and Stellantis, as well as Mercedes-Benz, all rely on the strength of the European Union for their production.

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A traditional free trade agreement between the US and EU does not exist, and they have not yet reached an agreement to coordinate bilateral trade and investment rules for the importation of materials related to the manufacture of electric vehicles, which is a key requirement outlined by the Treasury Department.

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The transatlantic tussle

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As a result of the impasse, the Biden administration is now struggling to rebalance the playing field with Beijing in order to achieve its rebalancing goals.

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A growing number of Europeans are not happy with the fact that the US is aligning allies against Beijing with the $369 billion IRA subsidy program as a carrot by distributing it to the IRA. As an EU member, you may also argue that massive subsidies across the Atlantic will unfairly distort the market for green goods, result in a reduction in clean energy investment in European countries, and create a global subsidy race.

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European trading bloc of 27 nations is in a bind.

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There are, on one hand, leaders of the EU keen to reduce the over-reliance on China for rare earth supplies, which is currently 98% of the total supply in Europe. Meanwhile, Europe does not intend to completely stop trading with China, and Brussels officials are concerned that if their companies are forced to become more reliant on China in the future because of increased competition for scarce goods located outside of China, then China will become even more important to them.

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Europe is finding itself in an uncomfortable position as a result of the Biden administration's protectionist approach to immigration, which has made transatlantic talks challenging. (Read our full article here.)

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The US and EU are likely to find common ground when it comes to the minerals negotiations, like they did when it came to the sanctions in response to Russia's invasion of Ukraine. However, the negotiation of the vital minerals remains a delicate process.

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As long as the EU and the US can get on the same page, it will help strengthen the west's economic bulwark against China's growth and Russia's expansionism and help strengthen the west's economic bulwark against the rise of China. If, however, talks do not progress, a new transatlantic trade disagreement could undermine a mainstay of international economic order and result in long-term repercussions for the global economy.

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