Will Biden Subsidize China’s EV Factories in Mexico?

The “green” agenda at work… at your expense

When he signed into law the erroneously titled Inflation Reduction Act (IRA), President Biden plunged the United States into all sorts of bad “green” investments, effectively committing America to spending money we don’t have on the radical Green New Deal. Biden tried to sell it by saying these new investments will revitalize American manufacturing, but myriad factors have forced the U.S. to rely on foreign producers of solar panels, battery components, and other materials required for the “green” economy.

Now, the “green” transition may end up enriching our global adversaries while we become ever more dependent on overseas producers.

Included in the IRA was a mandate that electric vehicles (EVs) make up 50 percent of all new U.S. vehicle sales by 2030—a mere 7 years—a move it says will “decarbonize” the American economy. To spur his eco-cultural revolution, Biden added an incentive for EV purchasers: A $7,500 tax credit on every vehicle sold.

The People’s Car

The problem, of course, is that China dominates the EV market, the manufacture of EV batteries, and the mining of the rare earth materials required to make them work. Even the Biden administration realizes the bad optics of allowing a tax rebate on a Chinese EV or an EV containing mostly Chinese-manufactured parts and materials.

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So they claim they’ve tried to “protect” the domestic EV market—first by blocking all foreign-made EVs from receiving the tax incentives in the IRA, and now, by introducing proposed regulations to prevent domestic EV manufacturers from using parts and materials from China.

Starting in 2024, EVs will not qualify for the $7,500 tax credit if its battery components come from a “foreign entity of concern”—i.e. China, Russia, Iran, or North Korea. By 2025, that restriction expands to any EV with critical materials produced by China or its cronies.

This puts the Biden administration’s ambitions in a real pickle. Currently, China controls over 90 percent of the global EV battery supply chain. It will take many years for the United States to catch up, even with the exorbitant subsidies paid by the federal government to incentivize the sale of domestic EVs.

To make matters worse, Chinese EV manufacturers have plans to open three new factories in Mexico. Not only will that expand China’s global dominance of the EV market, but it could also allow Chinese EVs to qualify for the $7,500 incentives to U.S. taxpayers on vehicles manufactured in Mexico.

According to a report in Business Insider,

Three major Chinese EV companies are planning to build new factories in Mexico, sparking concern among US officials, according to a new report.

MG, BYD, and Chery are all looking at sites to build new factories in the country, according to unnamed sources cited by The Financial Times, and this investment is causing angst in Washington as it seeks to keep China out of the US electric car market.

US officials have reportedly raised concerns with their Mexican counterparts over Chinese investment, with the new sites potentially including a new $1.5 billion to $2 billion MG electric car factory and a factory investment worth hundreds of millions of dollars from Warren Buffett-backed Tesla rival BYD.

Get Tougher on China

China has already become the world’s largest auto exporter, as of the first quarter of 2023. U.S. lawmakers have begun sounding the alarm, demanding that the Biden administration raise tariffs on Chinese-made vehicles. New developments indicate China has started looking for ways to sidestep those tariffs.

As Reuters notes:

Automakers in the United States have raised concerns about Chinese automakers.

Alliance for Automotive Innovation CEO John Bozzella said in June proposed U.S. environmental regulations could let China gain ‘a stronger foothold in America’s electric vehicle battery supply chain and eventually our automotive market.’

In September, the European Commission launched an investigation into whether to impose punitive tariffs to protect European Union producers against cheaper Chinese electric vehicle (EV) imports.

The lawmakers said the United States should work with allies ‘to impose a coordinated response that collectively dampens demand in our markets.’

In November, a bipartisan group of representatives from the U.S. House Select Committee on the Chinese Communist Party urged U.S. Trade Representative Katherine Tai to boost the current 25 percent tariff on Chinese vehicles that the Trump administration first put in place in 2018. They also urged an investigation into the harm Chinese vehicles pose to the American auto industry.

Mexico cozying up to China and their billion-dollar industrial investment schemes puts a bit of a pin in the United States-Mexico-Canada Agreement (USMCA) balloon. The free trade agreement that replaced NAFTA has led, in large part, to Mexico replacing China as the largest trading partner of the United States. If, however, China can use this arrangement to sidestep regulations and tariffs designed to thwart their unfair trade practices, it would set a precedent for China to further dominate its already massive monopoly in the green energy sector and put U.S. manufacturing at an ever more dire disadvantage globally.

So far, the Biden administration has not signaled whether it will expand the tariffs or restrict Chinese EVs made in Mexico from the American market, or if they will allow these perverse incentives to pass through to the CCP on such vehicles.

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