Ford began increasing production of the Mustang Mach-E this past week. Changes at the Cuautitlán Assembly Plant in Izcalli, Mexico will allow Ford to nearly double its hourly production and bring its annual manufacturing run rate to a targeted 210,000 units by year’s end.
Congress is getting an earful these days from America’s trade partners about the tax credits it is proposing on electric vehicles (EVs).
The complaint is that these tax credits, as written, are biased against imports, and run afoul of global trade rules. Canada and Mexico, for example, are talking about challenging the tax credits at the U.S.-Mexico-Canada Agreement (USMCA). Others, including Korea and Japan, say they might file disputes at the World Trade Organization (WTO). Last week, the European Union (EU) wrote to Senate leadership that, unless rewritten, the EV tax credits “will result in unjustified discrimination” against European cars and car parts. This letter is a game-changer, because the EU is credibly poised to retaliate.
First things first. As I’ve recently written, the tax credits come in at $12,500 per vehicle, but with protectionist fine print. The House’s Build Back Better proposes that $4,500 of this be contingent on the car being made by unionized labor, and that another $500 go to EVs with at least 50 percent U.S. content by value and have a U.S. battery. The full $12,500 tax credit would require both by 2027. The Senate’s version ties $2,500 to final assembly being done by unionized labor, and another $2,500 if the manufacturing facility is located in the US. By 2026, however, the full tax credit would require that both boxes be checked.
At issue is a provision in the US Build Back Better Act that offers an additional US$4,500 in tax credits to buyers of electric vehicles made by unionized U.S. workers on top of other incentives.
A bilateral spat over President Joe Biden’s proposed EV tax credit escalated Friday with Canada formally threatening retaliatory tariffs targeting the auto sector “and several other sectors of the U.S. economy” if the controversial provision remains intact.
Deputy Prime Minister Chrystia Freeland and International Trade Minister Mary Ng sent a letter to eight Senate leaders outlining Canada’s concerns. It warns of the actions the government is ready to take if the current “discriminatory” tax credit in the Build Back Better legislation is passed.
“If there is no satisfactory resolution to this matter, Canada will defend its national interests, as we did when we were faced with unjustified tariffs on Canadian steel and aluminum,” read the letter, referencing a 2018 trade dispute that Freeland was on the frontlines of at the time.
“Canada will have no choice but to forcefully respond by launching a dispute settlement process under the USMCA and applying tariffs on American exports in a manner that will impact American workers in the auto sector and several other sectors of the U.S. economy,” the letter read.
Elsewhere » Reuters
Congressional Democrats and the Biden White House have pushed that electric vehicle consumers receive a US$12,500 refundable tax credit if they purchase an EV made at a United States factory employing unionized workers. The subsidy declines to US$8000 if the vehicle is made at a non‐union American plant and it drops another US$500 if the car’s battery is not US‐made.
Then starting in 2027, only EVs assembled in the United States would qualify for the base $7,500 credit.
So what are the real objectives of the new US EV tax credits?
The EV tax credit might make for good politics for the union‐friendly Democrats, but the subsidy defies the United States’ international trade agreements, and potentially undermining the very environmental objectives they are intended to achieve.
Both Canada and Mexico have strongly objected, as has the American International Automobile Dealers Association (AIADA) and other groups.
The European Union, Germany, Canada, Japan, Mexico, France, South Korea, Italy and other countries wrote U.S. lawmakers saying a proposed U.S. electric vehicle tax credit violates international trade rules, according to a joint letter made public Saturday.
A group of 25 ambassadors to Washington wrote U.S. lawmakers and the Biden administration late Friday saying “limiting eligibility for the credit to vehicles based on their U.S. domestic assembly and local content is inconsistent with U.S. commitments made under WTO multilateral agreements.”
The U.S. Congress is considering a new $12,500 tax credit that would include $4,500 for union-made U.S. electric vehicles and $500 for U.S.-made batteries. Only U.S. built vehicles would be eligible for the $12,500 credit after 2027, under a House proposal released this week.
Canada and Mexico have issued separate statements in the last week opposing the plan. The U.S. State Department declined to comment Saturday and the White House did not immediately respond to a request for comment.
Earlier this week, the forth largest automaker signed a similar agreement with South Korean battery maker LG Energy Solution to produce battery cells and modules for North America.
Stellantis has said it wants to secure more than 130 GWh of global battery capacity by 2025 and more than 260 GWh by 2030.
Stellantis earlier this year announced it would invest more than 30 billion euros through 2025 on electrifying its vehicle line-up. It has set a goal that its electric vehicles will account for more than 40 percent of its U.S.A. sales by 2030.