China demands funds from the United States IRA: it takes the case to the UN and the Government fears consequences
The IRA has been one of the world’s most successful responses to runaway inflation (this is not our opinion, it comes from the International Monetary Fund). The World Bank expressed itself in the same situation, but what nobody expected was that China would want part of the funds. We tell you all about the conflict that has the Government on tenterhooks, and incidentally, the United Nations.
The IRA in the United States is writing a new chapter (with no good news)
The United States Inflation Reduction Act (IRA), of we have been some weeks talking about, aims to combat inflation and climate change through investments in clean energy and electric vehicles. A key provision offers tax credits to consumers who purchase electric vehicles assembled in North America.
This incentivizes domestic manufacturing and reduces reliance on China, which currently dominates the electric vehicle supply chain. However, China views the IRA’s electric vehicle tax credit as discriminatory and harmful to its exports, but, what did they do? You won´t believe it.
In March 2023, China requested consultations with the United States at the World Trade Organization (WTO), the first step in launching a formal dispute. China argues the IRA violates WTO rules by providing subsidies solely to North American-made vehicles and components.
This preferential treatment undermines Chinese electric vehicle exports to the US market. The US disputes China’s complaint, countering that the IRA tax credits are allowed under WTO rules. As China demands the WTO establish a dispute panel, tensions escalate between the superpowers over clean energy policy and trade.
China´s position is being heared at the WTO: what are they defending
China has filed a complaint with the World Trade Organization (WTO) alleging that certain provisions of the US Inflation Reduction Act (IRA) unfairly discriminate against Chinese companies. Specifically, China is challenging the IRA’s tax credits for electric vehicles and renewable energy projects.
These provisions exclude materials and components from China and represent discrimination against Chinese manufacturers, according to the complaint. China argues that the IRA’s electric vehicle tax credit of up to $7,500 only applies if EV batteries are manufactured in North America.
This impacts major Chinese EV battery makers like CATL and BYD. The IRA also provides bonuses for using US-made critical minerals and components. For renewable energy, China states that the IRA’s production tax credits are conditional on projects using a certain percentage of US-made equipment.
China unravels: this is what it is demanding and what it is aiming for
China is seeking significant compensation from the United States through the WTO dispute settlement process. Specifically, China wants the US to repeal tax credit provisions in the Inflation Reduction Act (IRA) that favor domestic companies producing electric vehicles, batteries, and critical minerals.
China argues these IRA policies unfairly discriminate against foreign producers and violate WTO rules. The Chinese Ministry of Commerce stated the disputed IRA clauses seriously damage the interests of Chinese firms. In its complaint to the WTO, China demanded the US compensate affected Chinese manufacturers.
Beyond financial compensation, China wants the US to modify or eliminate preferences for American-made products in the IRA. Chinese officials contend the law’s tax credits, subsidies, and other incentives for purchases of US-produced EVs, batteries, and minerals breach WTO national treatment principles.
It is clear that the IRA in the United States will continue on its path towards decarbonization, digitalization and improved living conditions. What we still don’t know, however, is what will happen to subsidies to the automotive industry – will China be the new preferred recipient? Brands such as BYD already are, much to the chagrin of our manufacturers who, like Tesla, are becoming increasingly indignant.
