China has filed a complaint to the World Trade Organization (WTO) after the United States excluded buyers who purchased electric vehicles (EVs) with Chinese batteries from its subsidy scheme.
Since January 1, EV buyers in the US have not been eligible for tax credits of US$3,750 to US$7,500 if critical minerals or other battery components are sourced from Chinese, Russian, North Korea or Iranian companies, according to US President Joe Biden’s signature climate legislation, named the 2022 Inflation Reduction Act.
As Russia, North Korea and Iran do not mass produce EV batteries, the United States’ new rules apparently target Chinese firms only.
“Under the 2022 Inflation Reduction Act, the US formulated discriminatory subsidy policies for new energy vehicles and excluded products made by other WTO members such as China from its subsidy scheme,” an unnamed spokesperson for the Chinese Commerce Ministry said in a statement released Tuesday.
“Such a move has distorted fair competition, seriously disrupted the global supply chain of new energy vehicles and violated WTO’s national treatment and most-favored-nation treatment principles,” the spokesperson said. “China firmly opposes it.”
The spokesperson urged the US to abide by the WTO rules, respect the development trend of the global EV sector and promptly correct discriminatory policies.
China’s WTO complaint was filed after the Chinese Foreign Ministry on March 22 criticized western countries for advocating protectionism and establishing trade barriers in the name of “fair competition” and “national security.”
“What they protect are their underdeveloped industries, what they lose is their future development and what they reap is lose-lose,” Lin Jian, a spokesperson of China’s Ministry of Foreign Affairs, said in a regular media briefing last week. “In the long term, the interests of their industries and customers will be affected, and the global transition to a green economy and the fight against climate change will be undermined.”
“The popularity of Chinese EVs relies on our technological innovation and superb quality in the midst of global competition, rather than subsidies,” Lin said.
He added that China has abolished all market access restrictions on foreign investment in manufacturing and remains open to international car makers, which can fully share in the dividends of China’s big market. He said Tesla sold over 600,000 vehicles in China last year while Mercedes Benz, BMW and Volkswagen have been household names in the country.
Anti-subsidy probe
Last September, the European Union said it would initiate a 13-month investigation into whether government subsidies have helped Chinese EV makers win market share in Europe in recent years.
A KPMG report said that in 2022 the top three European destinations for China’s EVs were Belgium (198,000 units), the United Kingdom (109,000 units) and Slovenia (47,000 units).
Some Chinese commentators said the EU will probably impose additional tariffs on imported Chinese EVs after the investigation. They said Chinese EV and battery makers can try to sell components, set up factories overseas and form partnership with foreign firms to evade extra tariffs.
Currently, tariffs on Chinese EVs are set at 10% in Europe and a whopping 27.5% in the US. The 27.5% tariff includes a 2.5% usual tariff for imported goods and an additional 25% tariff imposed during the Trump era.
“The extra 25% tariff policy has seriously disrupted Chinese EV makers’ development plan in the US,” a Chinese writer using the pen name “Xiao Ding” says in an article published in January. “The extra tariff does not only mean an increase of selling prices, but also sends a strong message to potential buyers and distributors that Chinese EVs are not welcomed in the US.”
Fortunately, he says, although Chinese EVs makers failed to grow in the US markets, they have so far received strong market responses in Europe and Southeast Asia.
He says the US may be able to benefit from its protectionism in the short run, but the world’s globalization trend will be irreversible in the long run. He says American EV makers should work with their Chinese counterparts if they want to grow their businesses overseas.
However, the US is planning to strengthen its curbs against Chinese EV makers and trying to persuade its allies to follow suit.
Republican presidential candidate Donald Trump said on March 16 in a public event that if he wins the election in November he will impose 100% tariffs on Chinese cars that are made in Mexico.
Republican Senator Josh Hawley last month introduced the Protecting American Autoworkers from China Act, which would increase the base tariff rate of auto imports from China to 100%, for a total tariff of 125% on all imported autos from China.
‘Trojan horse’
Last month, the Biden administration said it would investigate Chinese-made smart cars that can gather sensitive information on the roads in the US. Biden said China could flood the US market with its vehicles, posing national security to the US.
Prior to this, US Commerce Secretary Gina Raimondo has said in January that the US should think deeply about whether it wants China to have access to all the data that’s collected by electric and autonomous vehicles.
She said the information could be about the driver, the location of the vehicle and the surroundings of the vehicle.
Jim Saker, president of the Institute of the Motor Industry, told lawmakers in the United Kingdom on March 22 that China’s EVs flooding into Britain could be “the most effective Trojan Horse” at the Chinese Communist Party’s disposal.
He said Beijing could bring Britain’s road traffic to a standstill by remotely stopping Chinese-made EVs. He said the possibility of China stealing drivers’ data also presents a major security threat to the UK.
Beijing had complainted that the US and UK are overstretching the concept of national security in economic and trade issues.
Read: US calls Chinese EVs a possible security threat
Read: Trump’s tariffs to hurt Chinese automakers
Follow Jeff Pao on Twitter at @jeffpao3
Privacy is being eroded at every turn. I find the now ubiquitous, personal data collection enabled by technology quite distasteful. I think that all such devices, smartphones, TVs, cars, or whatever, should have a physical switch to off, a real switch that can’t be toggled by software. Any freedom loving government would legislate for it, except there aren’t any.
referring to USA no doubt