Kim explained Korean EV manufacturers were initially concerned about their ability to produce vehicles that would qualify for the credit because they rely heavily on China for battery minerals—a market that Beijing dominates. Korea lacks significant mineral resources as well as a processing industry to produce the so-called precursor chemicals used to make batteries, he said, and buys “everything” other than battery anodes and cathodes (the battery components that release and absorb electrons, creating an electric current) from China. The new rules reassured Korean firms, he said, by more clearly defining the process that the IRS will follow in assessing the relative value of battery components.
Nevertheless, Kim added, firms remain anxious about another provision in the law that denies eligibility for the tax credit if battery components or critical minerals come from a “foreign entity of concern.” This requirement takes effect in 2024 for battery components and in 2025 for critical minerals, but the U.S. Treasury Department has yet to announce a list of foreign entities of concern or to specify whether “entities” will be countries (e.g., China—a tougher restriction) or individual firms. Kim said that he expected ROK President Yoon Suk Yeol to push for additional flexibility in the EV tax credit rules during his summit with President Joe Biden.
Nakano reviewed the history of U.S. policy on critical minerals, which she asserted had historically focused on ensuring adequate supplies for defense-related manufacturing. This began to change in 2010, she said, when China imposed unofficial export restrictions on rare earth exports to Japan following a maritime dispute. She noted that in 2018, the U.S. Geological Survey released a draft list of 35 minerals deemed critical to the U.S. economy and found that the United States was 100% dependent on imports for 14 of the minerals and relied largely on China for these supplies. Concerns surrounding critical mineral supply chains drove actions by both the Trump and Biden administrations to establish more secure supplies, Nakano said.
Nevertheless, she argued, the United States should not and is not seeking to unseat China as the world’s leading supplier of critical minerals—this would not be a realistically attainable goal for America. Instead, Nakano said, the U.S. should use federal legislation and policy to diversify and strengthen critical mineral supply chains. This could help both to depoliticize the issue and to strengthen U.S. allies like South Korea that are integral supply chain partners. That said, the Biden Administration, the U.S. Congress, and U.S. allies are not fully aligned on critical mineral supply chains. This could make it harder to reach a satisfactory consensus on EV battery and mineral sourcing rules.