NEW ELECTRIC VEHICLE TAX CREDITS RAISE TALK OF TRADE WAR

A new tax credit for U.S. buyers of qualifying electric vehicles made in North America has ignited the specter of a trade war as a domestic imperative of the Biden administration and Democrats collides with the complex realities of globalization.

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Democrats included the credit in the expansive climate and health care policy law passed earlier this month as a way to incentivize domestic battery and electric vehicle production. But manufacturers in Europe and South Korea, which sell millions of vehicles in the U.S., have threatened to lodge legal complaints with the World Trade Organization.

Adam Hodge, a spokesman for the U.S. Trade Representative, said the intent of the tax credit is to boost “U.S. EV manufacturing, infrastructure, and innovation that will help us meet our clean energy goals, reduce costs, and create jobs” and “to reduce our dependence on China” for critical materials.

How the Biden administration handles the allegations brought by foreign governments and manufacturers will demonstrate whether the president’s international trade position will mirror the Trump administration’s go-it-alone approach, leaving the World Trade Organization’s dispute resolution process in disarray.

The law includes a tax credit of up to $7,500 that could be used to defray the cost of purchasing an electric vehicle. But to qualify for the full credit, the electric vehicle must contain a battery built in North America with 40% of the metals mined or recycled on the continent. And those rules become more strict over time, such that only a few American manufacturers could produce vehicles that qualify for the credits.

That has caused consternation among U.S. carmakers, who say they have ramped up efforts to bolster their supply chains in order to qualify for the credit.