US Needs to Prioritize Allies in Changes to EV Tax Credits, Other Trade Policies, Experts Say
U.S. allies want to see a more predictable and consistent American strategy over a range of trade policies, including electric vehicle tax credits, said Helen Zhang, director of the International Strategy Forum, speaking during a launch event for an Atlantic Council report on pressing issues within the U.S.-China technology race. She said it has been “very difficult” for American trading partners to “keep up” with the changing U.S. policies, particularly those that impact American imports of critical minerals.
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The House Ways and Means Committee earlier this month passed a bill that would change a number of tax provisions, including tax credits in the Inflation Reduction Act that govern where critical minerals, advanced batteries and electric vehicles can be sourced (see 2306140036). Zhang noted that the current U.S. tax credit legislation for electric vehicles -- which will not allow battery components from China by 2024 -- “ended up upsetting” U.S. allies, including European countries and South Korea.
Zhang said there is a “balancing act that you always need to be aware of,” adding that trading partners want to see a “sustained strategy that is bipartisan and will survive across several administrations.” But she also acknowledged that such a strategy is “really difficult.”
“Even though the Trump years were more than four years ago now, it rattled a lot of the Europeans, as well as Indo-Pacific allies, particularly those in Southeast Asia,” Zhang said, “who I think have had to sort of live with China setting the agenda in that region.”
The Atlantic Council’s new report, authored by Atlantic Council non-resident fellow Emily Weinstein and senior fellow Peter Engelke, said the IRA has put South Korea in a “difficult position as it relates to EVs and related components,” noting that South Korea argued that the provision violated World Trade Organization rules. The report said “things seem to have cooled between Washington and Seoul,” but the disagreement should serve as a lesson for U.S. policymakers “in how to approach technology policies going forward.”
“Policies that push allies and partners too hard to decouple from the Chinese market are likely to be met with resistance, as many (if not all) US allies have deeply woven ties with Chinese industry, and often do not have the same domestic capabilities or resources that the United States has that can insulate us from potential harm,” the report said.
Zhang said U.S. policies are now a “little more coordinated,” with more “bipartisan support for the long term, strategic goals of the U.S. And I think that's a welcome change in the region.”
The U.S. needs to sustain that, the report said, or it may risk some of its allies siding with China. Beijing will “likely continue to take advantage of this narrative to convince US allies to not join in US decoupling efforts,” the report said. “Much of the row over the IRA resulted from the perception -- real or not -- that the United States had failed to properly consider allies’ and partners’ interests while formulating the legislation.”