Panelists: Commerce Connected Vehicles Action May Be Next Step to Protect US EV Industry

Speaking during a panel on industrial policy at the Georgetown Law Trade Update last week. Sarah Bianchi, a former Office of the U.S. Trade Representative official who was also responsible for implementing the Inflation Reduction Act, said USTR "got a lot of incoming from friends and allies" after the IRA passed. Bianchi, who is now chief strategist of international political affairs and public policy at Evercore, said South Korea was particularly troubled by the North American assembly requirement, given that it had planned factories in the U.S., but it wouldn't be producing cars in time for the first year of tax credits.

"We were able to figure out some ways to accommodate that," Bianchi said, without elaborating. The Treasury Department created a loophole for EV consumer tax credits by allowing leases of cars made anywhere to qualify.

Bianchi added, "I don’t think it’s a major source of friction at this point," and said that the IRA is having the intended effect of stimulating electric vehicle battery supply chain manufacturing in North America. She also said that she didn't think critical mineral supply chain experts would have drawn the lines for tax credits as the IRA did. "Legislating is an art, not a science," she said.

Bianchi and Jamieson Greer, former USTR chief of staff during the Trump administration, agreed during the panel that the U.S. is vulnerable because most of the active pharmaceutical ingredients in generic medicines are made in China. "I'm not sure we've nailed the right approach" on that issue, Bianchi said.

Greer recalled that Puerto Rico used to be a pharmaceutical manufacturing powerhouse when there was favorable tax treatment for production on the island, and when that ended, so did its industry.

He also suggested that the clean energy and chips focus of the Biden administration is too narrow. He said the traditional car industry, aviation, robotics, industrial machinery are all under threat from Chinese production, which does not have the same need to be profitable as in true market economies.

Still, he acknowledged, "Trade measures come with some inefficiencies and some costs." He suggested that a border adjustment tax might be needed.

Bianchi and Greer said that while the new 100% tariff on electric vehicles from China makes sense to protect the IRA tax expenditures supporting the domestic industry, it is not enough.

Both said the Commerce Department investigation on the national security threat from "connected vehicles" may work.

Bianchi said, "I personally think that was the right way to go." She noted that Polestar EVs are slated to be built in South Carolina, and, if the Commerce Department finds that EVs made by Chinese firms are a threat, they could be stopped that way. Polestar and Volvo are both owned by Geely, a Chinese automaker.

When asked by International Trade Today if the Commerce Department was really going to shutter the existing Volvo plant in South Carolina, and prevent the Polestar plant from getting off the ground -- or require that Volvos made in the U.S. not include built-in GPS or the ability to link to drivers' phones -- Bianchi said: "The Tesla that is allowed to be sold in China is a lot dumber than the one we drive at our house."

She said if a Polestar drives onto a military base, it could map the layout and send that data back to China.

Greer said there could be a way to restrict Chinese firms' connected vehicles without putting thousands of American workers out of a job. He said one approach could be to allow Volvo to make advanced vehicles, as long as it sources the hardware and software needed for the data collection from firms that are not Chinese.