US and Japan strike trade deal on critical minerals for electric car batteries

The US and Japan will sign a trade agreement covering critical minerals needed for electric car batteries on Tuesday, as Washington pushes to reduce its supply chain dependency on China.

As part of the deal, the countries will refrain from imposing export duties on lithium, cobalt, manganese, nickel and graphite. They will also share information on potential labour violations in the supply chain for those critical minerals and “identify opportunities to build their respective capacities”.

Japan announced the deal ahead of an expected signing later on Tuesday. It comes as the Biden administration prepares to release guidance on how electric-car makers can qualify for the maximum tax credit under the Inflation Reduction Act, a landmark piece of climate legislation enacted by the US Congress last year to jump-start clean energy production.

The IRA, which seeks to reduce US emissions to half of 2005 levels by 2030, provides tax credits for companies that source parts and materials from countries with which Washington has a free trade agreement.

That potentially excludes the EU and Japan, which lack Congress-approved free trade deals.

The possibility of being blocked out of the IRA tax credits created tensions between Tokyo and Washington as the governments worked to align on economic security issues such as export controls designed to prevent China from obtaining and developing advanced technologies including semiconductors.

Yasutoshi Nishimura, Japan’s minister of economy, trade and industry, said on Tuesday the trade deal would pave the way for electric vehicles made with metals processed in Japan to be eligible for tax incentives under the IRA.

“With a significant expansion in demand expected for EV batteries, it was a pressing issue for us as to how we would secure the minerals that are essential for their production,” Nishimura said.

US officials declined to confirm whether the deal struck with Tokyo would qualify critical minerals sourced in Japan for the green subsidies. But they said the agreement contained “several new commercially meaningful” clauses. It will be up for review every two years.

This month, Washington launched talks with the EU on trade in critical minerals. EU officials said their hope was that a loose deal with Washington around critical minerals could be given “free trade-like status” and allow products from Europe to qualify for the subsidies.

Speaking to reporters on Monday, US officials said strengthening the US supply chain for critical minerals “along with like-minded partners” was “vital to the growth of the clean energy economy” and “advances economic security and stability by ensuring the United States and allies and partners are not reliant on other countries for critical minerals”.

The IRA tax credits are partly designed to encourage a revival of domestic supply chains and manufacturing and regain jobs in the US that had been lost to Asia.

In an interview with the Financial Times last month, Biden’s top clean energy adviser John Podesta said reliance on Chinese clean technology had created “a vulnerability” for the US and its allies that the administration was trying to fix.

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