Briefly: Japan and the US have reached a deal to boost cooperation on key minerals used in electric cars in a bid to reduce dependence on China. The agreement will allow electric vehicles (EVs) with metals collected or processed in Japan to benefit from massive US green subsidies.
A win-win: The incentives for Japan are clear: free subsidies courtesy of Uncle Sam. But what does the US get out of this?
- 🤝Resolving a trade dispute with an ally
Washington’s massive green subsidies package last year gave a competitive advantage to the US and its free trade partners. But a frustrated Japan (lacking a US free trade deal) was left out. The EU was likewise peeved.
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So this latest pact brings Japan into America’s green subsidy tent, and removes a real irritant with a close ally. The US and the EU are working on a similar deal.
- 💪 Diluting China’s green tech dominance
China’s dominance of critical mineral supply chains, plus battery and solar production, means it’s also well placed to dominate downstream sectors like EVs. And it’s hard for any other single country to compete with China on scale.
So the US and its partners are pooling their strengths in the hope their green industries can thrive together, rather than wither alone.
Intrigue’s take: One other thing comes to mind here: the US knows it needs to ink more meaningful trade deals to compete with China’s influence. But after decades of economic disruption, US voters don’t really like trade deals right now.
So Biden may have found a loophole: mini-deals (like the Japan-US one above) help the US compete with China, without the need for congressional approval. Of course, his decision to bypass Congress still drew a sharp rebuke (from Congress).
Also worth noting:
- Japan said it would need an investment of around $24B to develop a competitive battery manufacturing sector.
- Last year, Japan signed a critical minerals supply agreement with Australia, to ensure Australia continues to supply Japan with rare earths, lithium and other key materials for the energy transition.