The United States and Japan reached a trade agreement for critical minerals used in batteries–a deal aimed at allowing Japan to meet sourcing requirements for new electric-vehicle subsidies in the United States and beginning to shift energy supply chains away from China. Under the deal, the United States and Japan agreed not to levy export duties on critical minerals they trade and coordinate labor standards in producing minerals, among other steps. The Biden administration has started pursuing trade deals with close allies on critical minerals as it tries to address the restrictions it has placed on new subsidies for electric vehicles and China’s current dominance of the supply of minerals such as lithium and graphite that are necessary for making electric vehicles. President Biden is pursuing this tact rather than developing critical mineral mines in the United States where he is revoking leases, delaying permits, and adding to the list of endangered plants to stall its development.
Under the Inflation Reduction Act, the requirement for the tax credit for electric vehicles to qualify for the full $7,500 is that much of the minerals in the vehicle’s battery must come from the United States or a country with a free-trade agreement with the United States. Half of the tax credit is reserved for North American-assembled vehicles and batteries, and the other half of the credit is contingent on at least 40 percent of the value of critical minerals in the battery having been extracted or processed in the United States or a country with a U.S. free trade agreement or recycled in North America.
Many close U.S. allies, including Japan, the European Union and the U.K., do not have traditional free-trade agreements with the United States. The pact with Japan builds on a limited trade accord the two countries reached in 2019, which the United States and Japan will review every two years to see if they should end it or change it. The agreement to not impose export duties on trade in lithium, cobalt, manganese, nickel and graphite —all strategically important minerals — is a boon for Japanese automakers and companies like Panasonic, one of the biggest battery makers. A majority of global lithium production comes from China, Australia, Argentina and Chile; Russia dominates the global nickel market; and the Democratic Republic of Congo is the world’s largest cobalt producer.
The Biden administration worked the deal with Japan in such a way that minerals from there will now meet the sourcing requirement for the new tax credit—while not having to launch negotiations over broader trading issues that could prove lengthy and difficult to finalize. Biden administration officials believe Japan, which already processes and refines critical minerals, could become a major part of an overhauled supply chain for the goods. The United States is also negotiating a similar trade agreement with the EU, with plans to also try and strike a deal with the U.K.
Since the Biden administration is using executive authority to reach an agreement with Japan, it will not submit it to Congress for approval. The Biden administration, however, claims to have consulted closely with lawmakers on the agreement. According to a senior Biden administration official, the United States and Japan currently impose no export duties for trading critical minerals between their countries. The two countries also agreed to share information about reviewing foreign investments in the minerals sector.
Lawmakers in both parties, however, have criticized the administration’s push to make the agreement without receiving approval from Congress, calling it a violation of their constitutional authority, although many of these same lawmakers have supported Biden’s climate authorities under the Paris Accord, which has also never been submitted to Congress. According to the Biden administration, meeting climate goals will require a massive cooperative effort among U.S. allies to produce the vast amounts of minerals needed to electrify the global auto market, and the deal includes commitments on environmental standards and worker rights.
Biden administration officials see critical minerals agreements with members of the Group of Seven advanced democracies as the first piece of a broader strategy to reorient global supply chains away from China. Western officials have discussed forming a buyers club for critical minerals, in which G-7 nations would offer financing and other development support to countries such as Zambia that are rich in the resources—an effort to convince these nations to sell their minerals to the West instead of China. Of course, the United States could develop its own critical mineral resources, but that seems to be off the table as President Biden is catering to environmentalists, who do not want mining to take place in the United States, but push relentlessly for “green” policies requiring the use of significantly more critical minerals.
The Treasury Department is expected to release details about tax credits and adjustments to the law soon. According to the Biden administration, the Treasury Department is expected to define sourcing requirements for the EV tax subsidies by the end of March in guidance awaited by automakers, miners and battery producers. Billions, and perhaps hundreds of billions of dollars in tax credits are at stake in this decision.
Conclusion
According to the United States Geological Survey, the United States is endowed with critical minerals needed in electric vehicles and their batteries, as well as defense equipment, wind turbines and solar panels. Yet, the Biden Administration is revoking leases, delaying permits, and listing plants as endangered species to hinder critical mineral mine development to please its environmental friends, who do not want mining to occur in the United States while calling for the use of technologies requiring multiples of additional minerals consumption.
To show that the administration is not in China’s clutches for critical minerals, despite that country’s dominance, the Biden administration is undertaking agreements with its allies to allow them to qualify for tax benefits under the Inflation Reduction Act, despite the fact that these are trade agreements that should be approved by Congress. President Biden is wielding his Presidential authority as if he is ruling an authoritarian country and hurting the U.S. economy in doing so.
