Sen. Peters Defends American-Only EV Incentive as Lobbying Continues Against It

The Build Back Better Act that passed the House will offer an additional $4,500 tax credit for American-assembled electric vehicles from union plants, and it seems likely that the Senate version will strip the unionized portion of that, given West Virginia Democratic Sen. Joe Manchin's opposition. Georgia, which has two newly elected Democratic senators, also is home to a major electric battery manufacturer and a Kia plant. The Kia plant has not yet announced plans to make an electric car.

Autos Drive America, which represents mostly foreign automakers with U.S. production, is lobbying hard against this provision. "Obviously, we are very appreciative and thankful for Senator Manchin expressing his concerns over the language. We share his concerns," CEO Jennifer Safavian said in a telephone interview with International Trade Today. "We haven’t let up at all. Until I actually see new language where this is not in it, we need to continue."

But even as the union incentive seems in peril, the made-in-America aspect of the legislation is widely supported in the Democratic caucus, according to Sen. Gary Peters, D-Mich. Initially, a $7,500 tax credit would apply to the purchase of any electric vehicle, but after 2027, only U.S.-assembled cars and trucks would qualify for any purchase incentive.

"Any incentives we can give to make sure the products are made in America with American workers is something that we are totally, totally focused on," Peters said in an interview at the Capitol, when asked whether the American-made preferences were widely shared, despite opposition from Mexico, Canada, Japan, South Korea and the European Union.

"Clearly, we want to work closely with our Canadian friends, since it's a big issue for Michigan. If Michigan were a country, I believe we would be the second-largest trading partner with Canada. So certainly, I'm working closely with Canadian officials to make sure that this is mutually beneficial for all of us," Peters said.

The top trade official in the European Union, Valdis Dombrovskis, wrote to Senate leadership in both parties and the chairman and ranking member of the Senate Finance Committee on Dec. 3, arguing that targeting additional credits for American union-represented plants discriminates against EU automakers.

"EU car manufacturers have made significant investment in new U.S. production lines, including for electric vehicles. In this context, we agree that tax credits can constitute important incentives to drive demand for electric vehicles. Many EU Member States also make use of such incentives. However, we also believe that these tax incentives should be fair and avoid discriminating between car manufacturers," Dombrovskis wrote Dec 3.

He said the EU is also pushing for electrification of the transportation sector, and supports unions, but said that the credit would be unlikely to convince non-union workforces to unionize, and would instead steer purchases to manufacturers that already have unionized plants. He also argued that the preference for American assembly violates international trading rules, and said, "such measures would also risk significantly disrupting the highly interconnected transatlantic supply chains."

Safavian noted that the Nissan Leaf, Tesla, Rivian and Lucid plants, all in the U.S., are not unionized, and that Volkswagen will shortly begin producing an electric crossover vehicle in Chattanooga, where workers voted twice against joining a union. Volvo and BMW also have domestic non-union production of electric vehicles, and press reports say that Hyundai will make an electric vehicle in the U.S. next year.

She said if your goal is to get more electric vehicles on the road, you shouldn't limit it to unionized plants, or to cars assembled in the U.S.

She said that she understands the desire to grow automotive manufacturing domestically -- the companies her trade group represents produce half the domestic autos, and continue to expand in the U.S.

"I think Senator Peters is perhaps not recognizing we do have commitments with our trading allies. It clearly seems to run afoul of these agreements," she said, referring to the USMCA. "With Canada and Mexico and the supply chains so closely coordinated, I think it would be a mistake for us to not take them into consideration."

Safavian said she is curious as to whether the Senate Parliamentarian will say that a tax credit with such restrictions complies with the rules of reconciliation, which requires that the elements of the bill be directly linked to revenue or spending.