China Goes to WTO Over ‘Discriminatory’ US EV Subsidies

China is appealing for intervention from the World Trade Organization (WTO) to probe what it believes are “discriminatory” electric vehicle subsidies in the United States. According to the second-largest economy on the globe, the Biden administration’s green plan has implemented “discriminatory and protectionist” policies in America’s nascent electric vehicle industry.

The Inflation Reduction Act of 2022 pumped billions of dollars into the local EV industry but with caveats intended to encourage domestic production across the entire supply chain. These provisions lock out electric vehicles with parts sourced from or manufactured in China from the subsidies, most likely in an attempt to decouple the supply chain from Chinese companies.

China dominates the global EV supply chain and produces most of the world’s EV battery raw materials, granting it significant control of an increasingly important industry. The east Asian nation has also pumped hundreds of billions of dollars into its own EV sector, allowing a majority of Chinese EV companies to develop EVs cheaply and sell them at much lower prices compared to Western competitors. The Biden administration’s EV subsidy program was meant to counter Chinese investment in the EV sector and greater renewables ecosystem, allowing the U.S. to invest in its own green-energy ecosystem.

However, China filed a complaint at the WTO in March and is now asking for an expert WTO panel to probe the subsidies after negotiations with Washington failed. China has defended its own EV subsidy program, arguing that its industrial practices are entirely fair, and threatened to retaliate against any efforts to infringe on the legal interests and rights of Chinese companies.

According to a statement from China’s commerce ministry, the U.S.’s electric vehicle subsidies are “discriminatory, protectionist,” and in violation of World Trade Organization rules. The statement noted that the U.S. EV subsidy program excluded products exported from China and other WTO members, setting up “artificial trade barriers” and making the green-energy transition more costly.

Trade issues between the two nations have surged in recent months, especially within the green-energy segment, because China is a key player in the industry but the U.S. seeks to decouple itself from the Chinese supply chain. As a result, Chinese electric cars are essentially locked out of the U.S., and even Western EVs that are manufactured in China now cannot access federal subsidies. The recent 100% import tariff on Chinese electric cars made it impossible for Americans to buy low-cost EVs from China, cutting the country’s access to the third-largest EV market on the globe.

For established EV companies that have production plants in China and in Western nations, such as Tesla Inc. (NASDAQ: TSLA), new strategies may have to be implemented to access markets that have imposed tariffs on Chinese-made electric vehicles.

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