The Biden administration is facing a difficult decision on how to interpret a provision in the Inflation Reduction Act (IRA) that prohibits the use of certain foreign materials in electric vehicles (EVs) eligible for tax breaks. Advocates for the auto industry argue that setting a strict bar against Chinese content would disqualify most EVs for the tax break, while domestic miners warn that leaving a wide-open door to Chinese battery ingredients would harm their prospects. The decision is politically fraught, as Republicans, including former President Donald Trump, are already criticizing Biden’s approach to China, and uncertainty over the decision is freezing private investment in EV manufacturing. The Treasury Department plans to issue guidance on the matter by the end of the year. Automakers want to know if the rule will allow tiny traces of battery content from prohibited countries as long as they don’t exceed a minimal threshold, as well as what constitutes a “foreign entity of concern.” The specific interpretation of these questions will determine the eligibility of vehicle models for the tax credit and could impact Biden’s goal of making half of vehicle sales electric by the end of the decade. Industry watchers are urging Treasury not to apply a restrictive definition based on the CHIPS and Science Act, which is aimed at reducing Chinese dominance of the semiconductor industry and would limit the availability of credit-eligible EVs. The decision is challenging because it must balance concerns about Chinese influence with the need to maintain a robust domestic supply chain for EVs.

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