introduction
The United States has relented again! Recently, the Biden administration in the United States announced adjustments to the previously promulgated "Inflation Reduction Act".
Agreed to a two-year grace period to allow more U.S. consumers who buy electric vehicles to receive up to $7,500 in tax credits until 2026.
You must know that before this policy adjustment, 90% of electric vehicles in the United States did not enjoy tax credits.
The reason is that graphite, the raw material used to make these electric vehicle batteries, is imported from China and does not comply with the policy.
As a result, the American people, who are unable to enjoy the preferential treatment, have become increasingly dissatisfied with the government, forcing the US government to adjust its policies.
Obviously, the main reason why the United States has changed its order is because it underestimated the influence of Chinese graphite on the automotive industry, and Chinese graphite is also defending the glory of Chinese manufacturing like the previous Chinese rare earths.
So, what is the purpose behind the implementation of the "Inflation Reduction Act" in the United States? In the face of U.S. sanctions, how does domestic graphite protect the position of Chinese manufacturing in the U.S. market?
1. China's graphite is of high quality and low price, and its influence is comparable to that of China's rare earths
As we all know, China is a vast country with abundant natural resource reserves. Take, for example, rare earths, a resource that has been the subject of scandals between the United States and Mongolia in recent years.
China's rare earth reserves are as high as 44 million tons, with an annual output of more than 200,000 tons, accounting for 70% of the world's total annual output, and the export volume also ranks first in the world all year round.
It is worth mentioning that for China, the resource category that occupies a pivotal position in the world is by no means rare earths, and there is a resource comparable to rare earths, that is, graphite.
Graphite is a gray-black solid resource, an isotope of carbon in the chemical field, and it is very versatile, and it is often used as a raw material for daily necessities such as batteries, pencils, and lubricants.
China's total natural graphite reserves are as high as 73 million tons, accounting for 23% of the world's total graphite reserves, ranking second in the world, second only to Turkey.
China is also the world's number one graphite producer, producing a total of 1.2 million tonnes of natural graphite in 2023, accounting for 77% of the world's total production.
It occupies more than 90% of the world's graphite post-processing capacity, almost forming a monopoly position in the graphite field.
And the reason why Chinese graphite is so popular all over the world is very simple, that is, it is of good quality and low price.
After years of modular research and development, China has finally mastered the more advanced artificial graphite production technology in recent years, and the artificial graphite produced has a higher energy density.
And it has excellent cycling performance and safety performance, strong practicability, and has won unanimous praise from the world's major import enterprises.
What is even more commendable is that the graphite produced in China is not only large in quantity and high in quality, but also very cheap. With the continuous expansion of graphite production capacity.
The prices of all kinds of graphite exported by China are basically decreasing year by year.
In March this year, the volume of natural flake graphite exported by China doubled month-on-month to 4,870 tons, while the price fell by 10% to less than $1,000 per tonne, according to customs data.
Similarly, the previously popular spheroidal graphite was exported at 4,061 tonnes in the month, up 162% month-on-month, and selling prices were down nearly 9%.
In this way, driven by the double line of product power and price, the sales of Chinese graphite have been infinitely amplified in an instant, and it is reasonable that its sales volume has risen steadily.
Second, the introduction of the "Inflation Reduction Act" in the United States is actually in the service of politics
Of course, the high sales of graphite are naturally a good thing for China, but it is still very uncomfortable for the United States.
In recent years, new energy technology has gradually matured, and a trend of new energy vehicles replacing fuel vehicles has been formed in the automotive industry. The United States is a major producer of automobiles, and graphite is the main raw material for the production of new energy vehicle batteries.
Therefore, the rise of new energy vehicles means that a large number of graphite produced in China will enter the United States, which is undoubtedly contrary to the United States' trade sanctions against China.
In the early years, the United States did not realize this.
In the second half of 2022, the Biden administration officially passed the Inflation Reduction Act, which plans to invest $430 billion in clean energy, health care and other fields in the next decade.
Through tax reductions and exemptions, more enterprises can enjoy the benefits, and after the production costs of enterprises are reduced, product prices are also reduced, so as to achieve the purpose of alleviating inflationary pressure.
In April last year, the specific implementation rules of the bill were released, and new energy vehicles were listed. The fine print stipulates that consumers can enjoy a tax credit of up to $7,500 for the purchase of new energy vehicles manufactured and sold in the United States.
Half a year later, the U.S. government added to the detailed rules due to the needs of the trade war, saying that if consumers buy new energy vehicles with battery materials from China, Russia, Iran and other countries, they will be restricted from applying for subsidies.
The restrictions are enough to see that although the United States has introduced the "Inflation Reduction Act", it is not very urgent to reduce inflationary pressures. After a careful analysis, we can find that the United States actually has two implicit purposes in acting in this way.
The first is to ease the pressure on the fiscal deficit. In recent years, the U.S. government has been struggling to make ends meet, with a fiscal deficit of more than one trillion dollars every year.
After the introduction of the "Inflation Reduction Act", the world's major car companies must invest in the United States in order to meet the preferential conditions, so that the United States can obtain a large amount of fiscal revenue, and the pressure on the fiscal deficit can also be instantly alleviated.
The second is to pave the way for a general election. 2024 is the presidential election year in the United States, and the Biden administration has chosen to start a big push for the Inflation Reduction Act in 2023.
It is to let the American people see the current administration's determination to support local companies and boycott foreign goods, so as to enhance the prestige of the current administration in the eyes of the people and add bargaining chips to the upcoming general election in the future.
To be sure, the Biden administration's implementation of the Inflation Reduction Act (IRA) has been shrewd in its political pursuits.
However, from the perspective of international trade, such a hegemonic act of the United States obviously violates the principle of fairness in bilateral trade.
As a result, as soon as the "Inflation Reduction Act" was introduced, it attracted a wave of condemnation from other countries, and China's Ministry of Commerce and the relevant departments of South Korea immediately protested against the behavior of the United States.
The spokesperson of China's Ministry of Commerce also gave a very strong statement, calling on the United States to maintain a fair competition in international trade, and said that it would take countermeasures to protect its own interests when necessary.
Third, the United States was forced to adjust its policy, and China's manufacturing turned the crisis into safety
However, what the United States did not expect was that before other countries could offer countermeasures, the United States itself could not bear it.
According to U.S. media reports, in the first quarter of this year, 122 new energy vehicles were sold in the U.S. domestic auto market.
Only 13 cars are eligible for the $7,500 tax credit, accounting for only 10 percent, and the vast majority of the rest have Chinese graphite in their batteries.
Affected by this, the U.S. new energy vehicle industry, which had been soaring, came to an abrupt end this year, and there was a recession, sales stagnated, and the market share simply fell by 8%.
This performance makes the "Inflation Reduction Act" look very "chicken". In addition, the blockage of new energy vehicle companies from importing raw materials will inevitably lead to an increase in the price of raw materials in the United States.
This will directly lead to an increase in the price of new energy vehicles, making it more powerless to compete with traditional fuel vehicles.
What is even more uncomfortable is that the US government has to face double pressure. On one side of this pressure comes from graphite producers in the United States.
They hope that the United States will stick to the Inflation Reduction Act, because it will allow American graphite to not compete with imported graphite, and magnify its own interests.
On the other hand, U.S. automakers blame the U.S. government for the decline in the U.S. new energy vehicle market share and demand that it repeal the restrictions in the Inflation Reduction Act.
Eventually, in such an embarrassing situation, the U.S. government finally couldn't sit still, and they realized that Chinese graphite was absolutely indispensable if they wanted to fully develop the new energy vehicle industry.
As a result, they compromised with automakers and recently tweaked the Inflation Reduction Act, extending restrictions on Chinese graphite for two years.
As soon as the news of the lifting of the ban was released, the international community celebrated, and a number of South Korean media jointly reported on this topic.
They analyzed that the U.S. move fully proves the importance of Chinese graphite in the world's new energy vehicle industry.
At present, South Korean car companies are basically using Chinese graphite to produce batteries, so the lifting of the policy ban is a major positive for South Korean car exports.
Of course, South Korean cars are indeed stained with the light of Chinese graphite in this matter, but it is China itself that benefits the most.
China is the world's largest exporter of new energy vehicles, with a total of 1.203 million new energy vehicles exported in 2023, a year-on-year surge of 77%.
After years of operation, Chinese auto brands such as BYD, Chery, and Geely have a good market share in the United States, and even once had the capital to compete with Tesla, the top new energy vehicle brand.
If the United States uses the Inflation Reduction Act to exclude China's new energy vehicles from the American market, it will naturally hurt these car brands a lot.
Fortunately, Chinese graphite stood up in time. Because of the existence of Chinese graphite, the United States has no choice but to temporarily abandon the policy restrictions on the import of new energy vehicles.
As a result, new energy vehicles made in China have recovered a certain market share in the United States. From this point of view, Chinese graphite has indeed effectively protected Made in China.
epilogue
Iron also needs to be hard. It is precisely because of China's irreplaceability in graphite technology that Chinese manufacturing can still show sufficient competitiveness in the face of US sanctions.
For the United States, it should also understand a truth, that is, in the world, supply chains are interlocked.
The boomerang thrown by it for the sake of malicious sanctions will only hit itself in the end, and if it continues to be obsessed in the future, the consequences will inevitably be self-inflicted.
Bibliography:
1. Zeng Rui. New Trends, Impacts and Countermeasures of Clean Energy Subsidy Policies in the United States: An Analysis Based on the U.S. Inflation Reduction Act. Zhejiang Academic Journal. 2024(01)
2. Yang Chao. The impact of the U.S. Inflation Reduction Act on the global clean energy industry landscape. China Energy. 2023,45(11)
3. Heavy responsibility. U.S. postpones restrictions on Chinese graphite use. Global Times
4. Chen Junyuan.2021~2022 graphite resources, exploration investment and supply and demand analysis. China Non-metallic Minerals Industry Guide. 2023(03)