Crypto News: Supply Lines: EV sourcing rules

The US Treasury Department released its much-awaited guidance to clarify who can benefit from the Inflation Reduction Act's electric vehicle tax subsidies.

The release of the 61-page proposal on Friday marks a key moment for the Biden administration's trade agenda, with important implications for Europe, China and the $32 trillion arena for international commerce.

A key takeaway: Consumers can claim as much as $7,500 in federal tax credits if they purchase a clean-energy vehicle that satisfies certain US rules regarding critical minerals and battery components.

The rules are broadly aimed at diluting China's market power over raw materials like lithium, cobalt, nickel and magnesium, which are key ingredients for electric motors and batteries.

Treasury offered rule exemptions to nearly two-dozen countries — including Canada, Mexico and Japan — which are eligible for the tax credits because they have free trade agreements with the US.

If you're wondering why the list omits the European Union — home to car manufacturing giants like Volkswagen, Stellantis, and Mercedes-Benz — there's a reason for that.

The US and EU do not share a traditional FTA and have not yet concluded a mini-deal to coordinate bilateral trade and investment rules for critical materials to make electric-vehicle batteries, which is a key requirement in the Treasury Department's guidance.

Transatlantic Tussle

The impasse has become a new sticking point in the Biden administration's plan to rebalance the playing field with China.

Europe isn't exactly thrilled that the US is using the IRA's $369 billion subsidy program as a carrot to align American allies against Beijing. The EU also argues that the massive subsidies across the Atlantic will unfairly distort the market for green goods, lead to an exodus of European clean energy investment, and encourage a global subsidy race.

It's quite a dilemma for the 27-nation European trading bloc.

On one hand, EU leaders are keen to reduce their over-reliance on China, which currently provides some 98% of Europe's rare earth supplies. On the other, Europe has no plans to completely cut off trade relations with China and trade officials in Brussels worry that increased competition for scarce goods located outside of China may paradoxically force their companies to become more reliant on China than ever before.

That's putting Europe in an uncomfortable box and transatlantic talks have struggled due to the EU's broad concerns about the Biden administration's protectionism. (Read our full story here.)

While it's likely the US and EU will find common ground, as they did with sanctions following Russia's invasion of Ukraine, the critical minerals negotiation remains a delicate dance.

If the US and EU can get on the same page, it could help strengthen the west's economic bulwark against China's rise and Russia's expansionism. But if talks flounder, a new transatlantic trade disagreement could undercut a mainstay of the world economic order and create lasting headwinds for global growth.

Additional Reading:

—Bryce Baschuk in Geneva

Asia's slowdown | China's manufacturing activity unexpectedly eased in March, a private survey showed, leading a slide in factory gauges across Asia as the global economic outlook darkened. China's Caixin manufacturing purchasing managers index — which covers mainly smaller and export-oriented businesses — eased slightly last month as new orders and output both declined, registering a 50 reading that's exactly the line between expansion and contraction. Meanwhile, South Korea's export slump extended through March.

Over a barrel | OPEC+ announced a surprise oil production cut of more than 1 million barrels a day, abandoning previous assurances that it would hold supply steady and posing a new risk for the global economy.
Brexit bonus | The UK will join an 11-nation Indo-Pacific free-trade bloc, becoming the first new member since its creation, in a bid to strengthen economic ties with new partners following divorce from the European Union. Meanwhile, travelers trying to leave the UK by ferry faced delays at the country's busiest port on Sunday.
Price reductions | Tesla reported record deliveries in the first quarter, though fell short of the pace required to meet Elon Musk's long-held goal of 50% annual growth.
Bulk shipments | Australia sees its booming lithium sector matching thermal coal's importance within five years as the world increasingly shifts from fossil fuels to clean energy. Separately, Chinese and Australian officials will reportedly meet in Beijing this week for talks related to their trade dispute.
Stalling out | Just when it seemed like things were getting back to normal at Rhett Ricart's Columbus, Ohio, car dealerships — after pandemic-induced inventory shortages and runaway price inflation — a new obstacle emerged to keep buyers from closing the deal: soaring interest rates on auto loans.

Decoding China | The reopening of China's economy is a key factor shaping the global outlook. It's boosting growth and raising fears of an additional impulse to inflation in the US and Europe. It's also one of the hardest things to measure and predict, according to Bloomberg Economics.
Accord reached | The US and Mexico agreed on a course of remediation to address labor-rights violations at a VU Manufacturas auto-parts facility in Piedras Negras, Coahuila.
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