U.S. Treasury Secretary Yellen said that free trade agreements may give overseas automakers a way to earn electric vehicle tax credits without an act of congress.
Speaking to reporters at the G20 Finance Ministers Meeting last Friday, Secretary Yellen noted that the Biden Administration’s Inflation Reduction Act included legislation which would allow countries to negotiate free trade agreements with the U.S. on behalf of their automakers, whose vehicles are otherwise barred from EV incentives. Such arrangements would allow the federal government to use the tax credits as leverage, with the primary goal of securing expensive battery minerals for domestic purposes.
This method, which Secretary Yellen has already sought to use, could help soothe international tensions. Automakers and politicians, predominantly in Asia and the European Union, have criticized the legislation for its restrictive eligibility standards. For an EV to qualify for tax credits, the bill requires a majority of both its components and materials to be built and sourced domestically. Although they were mainly intended to reduce the industry’s reliance on Chinese mining and manufacturing, these rules also prevented vehicles from global brands such as Hyundai, Volkswagen and Toyota. Since the legislation passed, several global car brands have announced plans to build new factories in the U.S., causing employment concerns in their home countries.
The Treasury Secretary noted that, as free trade agreements are already covered in the Inflation Reduction Act, the President would be able to negotiate these agreements without changing the law, thus circumventing the normal requirement for congressional approval. Currently, new EVs, which meet all of the act’s manufacturing and pricing guidance, can qualify for up to $7,500 in tax credits.
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