China has labeled the new law as "discriminatory," echoing the sentiments of South Korea and the EU.
Last month, the United States Senate officially passed the Inflation Reduction Act. The idea was to incentivize automakers to produce their vehicles in the US and to rely less on China, and it's already begun to have a positive effect on the American economy, with numerous investments taking place since the Act's signing.
But not everyone is happy. Japan has voiced its concerns that the IRA may violate international law, and our research suggests that Japan may be right. And the Japanese are not alone in their feelings. South Korea and Germany, along with the European Union as a whole, have brought similar complaints forward, and now China has expressed its discontent, threatening retaliatory action.
The act not only effectively places a $7,500 tariff on vehicles that do not meet its criteria, but it is also intended to reduce America's reliance on critical battery component supply from China, Russia and other "foreign entities of concern." As reported by Bloomberg, the Chinese government has something to say about this.
The clause in the Act ruling out tax breaks for non-compliant vehicles "discriminates against similar imported goods, and is a suspected break of the World Trade Organization principles," according to Shu Jueting, spokesperson of the Ministry of Commerce.
"China will continue to assess and evaluate implementation of the legislation and will take measures to safeguard its legal interests where necessary," she added. However, she did not provide specifics on how China would retaliate.
Similarly, a spokesperson for the European Commission said that the European Union would "take the necessary steps to defend its interests." Chinese ambassador to the US Qin Gang has also expressed that the Act could be bad for both nations, as the interests of each are "intertwined," adding that "the electric vehicle value chain, or specifically the supply chain, is very globalized." For example, the BMW i4 uses batteries from CATL, a Chinese company, and Samsung SDI, a South Korean corporation.
Clearly, China's feelings on the matter are not meant to invoke violence. China, the EU, Japan, and South Korea are not looking for some sort of trade Cold War. They simply want the US to realize that it is officially part of a global community and the World Trade Organization's members are forbidden from applying tax codes "to imported or domestic products so as to afford protection to domestic production," as per an excerpt from a multilateral trading agreement document that the US has signed.
While some outlets are reporting this news as a threat of some sort of violent conflict, China (and the rest of the automotive world) simply wants to be afforded fair treatment. This is why they are continually raising the issue of the IRA and speaking with government representatives to try to enact a change. If the US refuses to make any changes, these nations can individually or collectively file a complaint with the WTO, which could lead to a lawsuit and the imposition of sanctions on American exports, as was the case when President Trump imposed tariffs on aluminum and steel imports only to face a 25% tariff on agricultural exports.
The saga continues, and what appeared to be a big economic boost could be a threat to financial prosperity in the long run. Some sort of compromise must be reached, or the US may be cut off from WTO member nations.