Biden’s New Green Tax Rules Open Door To China

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The Biden administration has released proposed rules for green manufacturing tax credits, potentially allowing Chinese firms to benefit from these incentives. The guidelines, issued by the Treasury Department, outline the eligibility criteria for the Inflation Reduction Act (IRA) subsidies to promote domestic manufacturing of products like electric vehicle (EV) and solar panels parts.

While the proposed rules do not restrict entities tied to adversarial foreign countries, they allow China-linked companies to take advantage of tax credits if they establish operations in the United States and meet all other eligibility requirements.

These tax credits for manufacturing, commonly referred to as 45X credits, play a pivotal role in advancing the administration’s green energy objectives and are anticipated to play a substantial part in fostering growth in the green energy economy and job opportunities within the manufacturing sector. Nonetheless, constraints within the IRA prevent the Treasury Department from placing limitations on foreign companies within the tax credit guidelines.

Conversely, the eligibility criteria for the administration’s electric vehicle (EV) consumer tax credit include specific restrictions on companies affiliated with “foreign entities of concern,” such as Russia, China, North Korea, and Iran.

Despite the absence of explicit restrictions in the guidance, Biden administration officials have stated that they will closely monitor foreign investments through other means, such as the Treasury Department’s Committee on Foreign Investment in the United States (CFIUS). Since the IRA became law in August 2022, companies have announced $140 billion in green manufacturing investments, reflecting the appeal of robust manufacturing tax credits.

However, concerns about specific projects tied to Chinese firms and their eligibility for tax credits have been raised. For instance, Gotion, an American subsidiary owned by China-based Gotion High-Tech, intends to construct subsidized manufacturing facilities in Michigan and Illinois.

Gotion High-Tech has extensive connections to the Chinese Communist Party (CCP), leading to opposition from residents and elected Republicans. Local officials in Green Charter Township, Michigan, were voted out in November due to their support for the Gotion facility in the neighborhood. Congressional Republicans have also called for a CFIUS review of Gotion’s plans in Michigan and Illinois, citing concerns about the company’s CCP connections.

Another project that has faced criticism for its ties to China is Ford’s plan to build a new plant in Michigan using technology licensed by CATL, a Chinese battery company. A recent report by the Foundation for Defense of Democracies has raised concerns about potential national security and espionage issues related to this partnership. Ford announced a pause in the plant’s construction in September following a letter from House Republicans seeking more information about the plant’s relationship with CATL.

While the proposed rules for green manufacturing tax credits leave room for Chinese firms to benefit, the Biden administration is expected to employ other means, such as CFIUS, to scrutinize foreign investments and mitigate potential risks. The focus remains on promoting domestic manufacturing and the growth of the green energy economy while addressing concerns about ties to adversarial foreign entities.