China’s Ministry of Commerce says it will take action against the U.S. if the country goes ahead with its plan to withdraw EV subsidies on the basis of foreign supply and production. What that action would be remains unclear, but China says it will actively protect its legal interests from the Inflation Reduction Act, which it calls a “discriminatory” U.S. law, according to Bloomberg.
The vague legal threat comes on the heels of last week, when a Chinese ambassador issued a “warning” to the U.S. over a proposal to cut China out of the supply chain for domestic production of electric vehicles. Now, China says it’s evaluating the Inflation Reduction Act because it suspects the U.S. law violates World Trade Organization rules, as Reuters reports.
If China determines that the U.S. is, indeed, breaking WTO rules, the country claims it will take necessary steps to protect its legitimate rights and interests, echoing last week’s talk of “intertwined interests.” Presumably, the idea is to convey a sense of mutual participation between the U.S., China and other countries as EV production takes off.
But it’s hard to be magnanimous when every country isn’t really participating “mutually” in the current EV supply chain; China plays an outsized role in processing the raw materials that go into EV batteries. And regardless of where these battery metals come from, China has become the foremost refiner.
The U.S. has made a pointed effort to exclude Chinese-sourced and assembled EVs in new subsidies. This could chip away at China’s lead as the world’s de facto EV supplier. So, as a response, China’s latest volley escalates the warning to a possible legal threat, citing discrimination of imported goods and appealing to the WTO.
As we noted earlier, this challenge from the Chinese is heaping onto criticism the U.S. is receiving for its long-term plan to source and build EVs domestically. Whether the U.S. is convinced to scale that plan back by foreign carmakers and countries — now, maybe, the WTO — is uncertain. The only thing certain is that the exchanges between China and the U.S. are becoming less friendly.