Washington's discriminatory subsidy policy on EV production bound to backfire

BEIJING, Feb. 2 (Xinhua) -- In a recent letter submitted to the U.S. government, Hyundai Motor Group complained that it is impractical to immediately remove foreign entities of concern (FEOCs) from the electric vehicle battery supply chain for certain key minerals.

The South Korean automaker is concerned about the United States' new subsidy regulation for electric vehicles, which took effect in January under the Inflation Reduction Act. The regulation stipulates that starting this year, electric vehicles eligible for tax relief in the United States must not include battery components manufactured or assembled by any FEOCs, including Chinese companies.

Given China's prominent role in the production of electric vehicle batteries, the regulation is widely seen as Washington's scheme to push automakers away from Chinese battery suppliers. Data from think tanks and research groups show that about 70 percent of the global battery production capacity is located in China, and the country leads significantly in the number of lithium battery patents worldwide.

Washington's discriminatory subsidy policy implies that if electric vehicle companies in the United States want to enjoy tax relief, they have to restructure their battery supply chain and decouple from China in the field. However, it is no easy task for companies to change a supply chain pattern established by market activities. By doing so, they will suffer great costs. That is why Hyundai described the move as unrealistic.

As The New York Times noted in a recent article, under the stricter rules, fewer electric vehicles will qualify for U.S. federal tax credits in 2024. That will only push up the production costs of companies in the United States, and American consumers will finally foot the bill, which will hinder Washington's efforts to fulfill its green ambition.

Though ever-larger subsidies and financial support have been offered to companies, it is not sustainable, said Henry Sanderson, executive editor at Benchmark Mineral Intelligence, in an article published recently in Foreign Affairs.

"Attempting to compete with China on cost in every sector would likely waste taxpayer money, delay the energy transition, and lead to greater damage from climate change," he said.

Washington's protectionist policy on electric vehicles is bound to backfire. It must recognize that the progress of any industry hinges on adherence to market laws. Any unwarranted interference runs the risk of causing more harm than benefit.