China Accuses US at WTO of ‘Discriminatory’ Electric Vehicle Subsidies

China is accusing the United States of providing “discriminatory” electric vehicle subsidies and has begun proceedings at the World Trade Organization. The electric vehicle subsidies in question are part of the 2022 Inflation Reduction Act (IRA) and are meant to boost the growth of a domestic electric-vehicle-battery supply chain while limiting America’s reliance on China.

U.S. lawmakers sought to achieve this goal by making battery electric cars with battery components manufactured in China, North Korea, Iran and Russia ineligible for federal tax credits worth $3,500 to $7,500. Only drivers buying electric vehicles with battery components manufactured in the United States or by companies in allied nations will have access to federal subsidies.

These measures take effect this year and will likely prevent Chinese manufacturers from entering the nascent American electric vehicle market. With China dominating the global EV battery supply chain, American leaders are desperate to decouple the country’s economy from its East Asian rival and develop a local robust supply chain for electric vehicle batteries.

China argues that while these policies have been framed as America’s response to climate change, their effectiveness is reliant on purchasing and using goods that are developed in the U.S. or imported from specific regions. A spokesperson from the Chinese Ministry of Commerce urged U.S. leaders to promptly correct the country’s “discriminatory industrial policies” and help keep global industrial and supply chains for alternative energy vehicles stable.

The spokesperson said that on top of excluding Chinese-made products from the U.S. electric-vehicle market, the EV subsidies outlined in the 2022 Inflation Reduction Act negatively affected the global electric-vehicle supply chain and hampered fair competition in the young EV market. With the new rules taking effect on Jan. 1, 2024, only 13 out of the 50 battery electric vehicle models currently on sale in the U.S. are eligible for federal tax credits.

In comparison, nearly two dozen electric vehicle models qualified for tax credits last year. This has left automakers scrambling to find alternative suppliers from the U.S. or allied nations to make their EVs eligible for the credits, reports the Associated Press. Since electric cars are more expensive than internal combustion engine (ICE) cars, these subsidies are often the only way consumers can afford to purchase EVs.

China’s accusations of discrimination come amid escalating political and economic tensions between Beijing and America that have seen the two nations deprive each other of critical raw materials and supplies, such as rare earth metals and semiconductor chips.

China-based electric vehicle makers such as Kandi Technologies Group Inc. (NASDAQ: KNDI) will likely follow the WTO proceedings closely to see if the U.S. is compelled to reverse the policies that China deems discriminatory against EV manufacturers in China.

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