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U.S. Limits China’s Ability to Benefit From Electric Vehicle Subsidies

U.S. Limits China’s Ability to Benefit From Electric Vehicle Subsidies

The Biden administration issued new rules to prevent Chinese firms from supplying parts for electric cars set to receive billions of dollars in tax credits.

The Biden administration proposed new rules on Friday aimed at shifting more production of electric vehicle batteries and the materials that power them to the United States, in an attempt to build up a strategic industry now dominated by China.

The rules are meant to limit the role that firms in China can play in supplying materials for electric vehicles that qualify for federal tax credits. They will also discourage companies that seek federal funding to build battery factories in the United States from sourcing materials from China or Russia.

The rules could encourage shifts in automotive supply chains, which continue to rely heavily on China for materials and components of electric vehicles. Automakers are also facing intense cost pressures as they try to modify their factories to make electric cars, and China offers some of the most advanced and lowest-priced battery technology in the world.

The Biden administration is trying to use billions of dollars in new federal funding to change that dynamic and create a U.S. supply chain for electric vehicles.

The climate law that President Biden signed in 2022 includes up to $7,500 in tax credits to consumers who buy electric vehicles made in the United States using largely domestic materials. The law also included a general ban on Chinese products. Lawmakers mandated that firms in China, Russia, North Korea and Iran be prohibited from providing certain materials to cars that received those tax breaks.

But the law left open several questions, including what constitutes a Chinese or Russian company. Administration officials said those definitions included any entity that was incorporated or had headquarters in China or Russia, as well as any firm in which 25 percent of the board seats or equity interest was held by Chinese or Russian governments.