Japan warns US’ EV tax credit in Biden inflation bill could deter investment, cost jobs

Japan warned the United States over the weekend that the latter’s electric vehicle tax credits could dissuade them from investing in the world’s largest economy. 

The Japanese government sent a letter to U.S. Treasury Department on Saturday, complaining that the tax credits in the Inflation Reduction Act (IRA) put Japanese carmakers at a disadvantage in the U.S. market. 

The Japanese government argued that the requirements for being eligible for the tax credit were "not consistent" with the shared policy between the two countries to build resilient supply chains with other allies and reduce exposure to China. 

"It would be possible that Japanese automakers hesitate to make further investments towards electrification of vehicles," the government said. "This could cause negative impacts on the expansion of investment and employment in the U.S."

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South Korea and European countries have also expressed concerns over the tax credits. Last Friday, South Korea said it was seeking a three-year grace period so that its automakers could continue receiving EV incentives in the U.S. 

The new law introduces incentives to bring battery and EV manufacturing to the United States with the aim of ratcheting up domestic content over the next six years. 

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The Japanese government has argued that limitations on the range of vehicles that benefit from the tax credit will ultimately give U.S. consumers fewer options at affordable costs and may even interfere with Biden’s climate goals. 

Reuters contributed to this report.