But the Inflation Reduction Act doesn’t afford special allowances for “allies.”
Japan takes umbrage at that while seeming to ignore the fact neighboring economic rival South Korea is both an important American military ally and a partner in a U.S. free-trade pact.
Japan asked that rules governing the new U.S. tax credits be “interpreted in a flexible manner so that the EV tax credit can be applicable to a vehicle with battery components manufactured or assembled in allied countries such as Japan.”
It requested the same flexible thinking for battery making and material mining.
If not, Japan also issued a warning.
The new incentives, it said, will have a chilling effect on Japanese investment and discourage Japanese carmakers and suppliers from expanding operations in the U.S.
“It would be possible that Japanese automakers hesitate to make further investments towards electrification of vehicles,” the Japanese government said. “This could cause negative impacts on the expansion of investment and employment in the U.S.”
This threat seems as hollow as it is off base.
Taking a page from the past, Japan may have envisioned the home islands as a massive global export base for the next generation of electric vehicles. And that is a big reason why U.S. incentives like these are proffered, to bring more of that work back to the U.S.
It is also why Japanese carmakers are unlikely to take their ball and go home.
For decades, they have plowed so much money into the U.S. market and become so entangled with its economic fate, that the likes of Toyota, Honda, Nissan, Mazda, Subaru and Mitsubishi can ill-afford not to invest more. The Inflation Reduction Act has them between a rock and a hard place.
