China Files Complaint Against U.S. over New Energy Vehicle Subsidy Policies: Impacts on Global Supply Chain and Competition

China set to oppose Biden administration’s electric vehicle strategies at the World Trade Organization

The Chinese Commerce Ministry has filed a complaint against the U.S. with the World Trade Organization, accusing the U.S. of formulating discriminatory subsidy policies for new energy vehicles under President Joe Biden’s climate legislation, known as the 2022 Inflation Reduction Act. Under a new U.S. rule that went into effect on January 1, electric car buyers are ineligible for tax credits of $3,750 to $7,500 if critical minerals or battery components were made by Chinese, Russian, North Korean, or Iranian companies. These tax credits are part of Biden’s efforts to reduce greenhouse gas emissions and create jobs in the clean energy sector.

The Chinese government did not specify what prompted the complaint but criticized the U.S. for excluding Chinese products from subsidies for new energy vehicles, which distorted fair competition and disrupted the global supply chain for these vehicles. Members of the WTO can file complaints about trade practices of other members and seek relief through a dispute settlement process.

The impact of the case is uncertain, as the functioning of the WTO’s Appellate Body has been blocked since late 2019 by the U.S., making it difficult to resolve disputes between nations. China is a dominant player in batteries for electric vehicles and has a rapidly expanding auto industry with strengths in electric vehicles and battery technology. The European Union has launched its own investigation into Chinese subsidies for electric vehicles, concerned about potential threats to its auto industry.

With the new U.S rule, only 13 out of over 50 electric vehicles on sale in the U.S are eligible for tax credits, a decrease from about two dozen models in 2023 . Automakers are working to source parts that would make their models eligible for the credits .

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