OPINION / VIEWPOINTUS limits on tax credits for EVs targeting...

OPINION / VIEWPOINT

US limits on tax credits for EVs targeting China and ‘overcapacity’ hype reflect protectionism, unease with China's new-energy advantage

By Su Yaxuan and Qi Xijia Published: May 04, 2024 05:48 PM

EV Photo:VCG

The US released a final rule on Friday stating that electric-vehicles (EV) manufactured using materials from China will not be eligible for the tax credit amid its attack on China’s EV industry with the so-called “overcapacity” rhetoric.

Chinese experts said the limited access to tax credits targeting China, as well as the hype about China's “overcapacity”, showed stepped up trade protectionism and revealed US’ uneasiness with China's growing advantage in the global EV market.

The Treasury Department announced final regulations for the credits under the 2022 Inflation Reduction Act (IRA). Americans buying electric vehicles (EVs) will no longer be able to claim federal tax credits of up to $7,500 if their cars contain Chinese materials, The Washington Post reported.

China’s Ministry of Commerce (MOFCOM) said in December that China's EVs and parts are welcome in the global market, and excluding Chinese firms from the tax credits of IRA of 2022 is a typical non-market-oriented policy and practice.

The discriminatory subsidy policy violates the basic principles of the WTO, seriously disrupts international trade and investment, and undermines the stability of global industry and supply chains, the MOFCOM said.

Unlike the draft version in December, the final regulations allow automakers to continue purchasing Chinese graphite until 2027 and still qualify for the subsidies. According to US media, major manufacturers had lobbied and warned that without this extension, every EV on the market would be ineligible for the credit.

It indicates that the US is struggling with a deadlock in accelerating the energy transition and facing the consequences of forcing out the Chinese supply chain, experts said.

The Washington Post warned that if the Biden administration moves too quickly to choke off Chinese supplies it could miss its target for half of new cars to be zero-emission by 2030.

The final rules come as the Biden administration has been aggressively smearing Chinese EVs, hyping the so-called “overcapacity” in China’s new-energy industry.

Chinese experts argue that the US’ accusation of China's "overcapacity" is merely a guise for its trade protectionism, reflecting its growing worry about China's advantage in the global market for new-energy products.

The difficulties and challenges facing US car companies are evident. In recent months, the growth of EV sales in the US has slowed down. Data shows that from January to March this year, EV sales only grew by 3.3 percent, reaching nearly 270,000, accounting for only 7.15 percent of total vehicle sales.

The so-called “overcapacity" rhetoric is a desperate attempt to suppress Chinese EVs in the global market, where the US cannot compete with China's high-quality and low-cost products, Qiu Wenxu, a research fellow with Silk Road Academy of Social Sciences, told the Global Times on Saturday.

“The US can only try to hinder China's EV development through its usual trade suppression tactics. However, history tells us that trade protectionism has never been able to stop the globalization of goods, and will only increase the cost for consumers,” Qiu said.

China’s advantage in the new-energy sector has been built through continuous technological research and innovation, a complete industrial chain and mature manufacturing capabilities, Liu Chunsheng, a professor at the Central University of Finance and Economics, told the Global Times on Saturday.

According to the forecast of International Energy Agency (IEA), the global demand for EVs will significantly increase in the future, and China, as the world's largest EV market, is expanding its production capacity based on reasonable expectations for future market demand, Liu added.

According to the IEA, the global demand for new-energy vehicles in 2030 will reach 45 million units, which is 4.5 times that of 2022, and at the same time, the global demand for new photovoltaic installations will reach 820 gigawatts, which is about 4 times that of 2022.

In contrast to the protectionist moves of the US, China has taken steps to remove restrictions on foreign investment in the manufacturing sector, providing equal opportunities to enterprises from all countries.

The Chinese industrial association recently released a list of 76 models of intelligent connected vehicles that meet the country's auto data security requirements, including those from Tesla. This development has been seen as a positive step for Tesla's self-driving technology advancement in the Chinese market.

Despite the so-called "overcapacity" hype by some US officials, the recent visit of Tesla CEO Elon Musk to China and Tesla's development in China offer successful example of China-US economic and trade cooperation.

Experts said it is crucial for the US government to rectify its discriminatory industrial policies to safeguard the stability of the global EV industry chain and uphold global climate change efforts.

The Chinese note the graphite exemption and explain why. All vehicles would not qualify without it. Maybe China should lob an offer at us. Hope BTR resume orders for China based processing now