China’s Ministry of Commerce announced on July 15 that it will escalate its trade dispute with the United States over the Inflation Reduction Act’s tax credits for electric vehicles and renewable energy projects.
China contends that these credits unfairly favor domestically produced components, violating international trade rules. Since April, the U.S. and China have been discussing the IRA at the World Trade Organization (WTO), where China labeled the subsidies as unfair trade practices that contravene WTO rules. However, China now states that these talks have failed, prompting the need for formal dispute negotiations mediated by the WTO.
In a statement, China’s commerce ministry criticized the IRA for creating artificial trade barriers and increasing the costs of transitioning to green energy by excluding products from WTO members like China. The ministry urged the U.S. to adhere to WTO rules and cease using industrial policies that undermine international climate cooperation.
China initially raised concerns in March by sending a letter to the U.S. delegation at the WTO, requesting discussions on the IRA subsidies. Although the U.S. agreed to these talks in April, it emphasized that this acceptance did not equate to agreeing with China’s claims that the IRA measures required resolution.
China’s letter argued that the IRA violates a WTO agreement aimed at reducing climate change effects, which allows for non-discriminatory subsidies to support clean energy transitions. The letter contended that the IRA’s subsidies are discriminatory and protectionist, contradicting WTO rules and failing to advance the shared goal of addressing climate change.
Specifically, China targeted five IRA tax credits: the $3,750 electric vehicle tax credit, the investment tax credit for renewable energy property, the clean electricity investment tax credit for renewables, the production tax credit for electricity from renewables, and the clean electricity production tax credit. China’s main concern is the IRA’s domestic content provisions, which mandate that EV and renewable energy components be made from U.S.-extracted materials.
For instance, to qualify for the EV tax credit, vehicles must be manufactured in North America. Additionally, vehicles meeting the critical minerals requirement can earn a $3,750 tax credit, with an additional $3,750 available for meeting domestic battery component requirements. From 2024 onwards, vehicles containing critical minerals sourced from China will not qualify for these credits.
This article was co-written using AI and was then heavily edited and optimized by our editorial team.
