The United States and Japan have signed an agreement to strengthen supply chains for critical minerals like lithium, cobalt, nickel, and electric vehicle batteries. The agreement also envisages strengthening trade between the two countries in these products, which are essential for the energy transition and have been dominated by China.

The agreement marks the first step toward including Japanese batteries and EVs on the list of those eligible for the 7 500 dollars subsidy under President Biden’s grand climate plan, the Inflation Reduction Act (IRA), which invests 370 billion dollars to transition the US to cleaner cars and energy sources, and was finally passed last summer.

The deal could be a model for resolving similar trade disputes between the US and some of its allies, like the European Union.

The Treasury Department will make the final decision, which is expected to publish a list of eligible vehicles in the next few days. This also concerns critical materials needed for the energy transition, particularly for manufacturing wind turbines and solar panels.

Deal with EU to follow?

The agreement is similar to the one the European Union hopes to sign with the United States to allow European manufacturers to benefit from the same subsidies. Negotiations are ongoing between the two sides of the Atlantic.

The head of European diplomacy, Joseph Borrell, recalled on 14 March that these subsidies did not, in this case, comply with the rules of international trade “on many points” and will lure investment away from them.

Japa and South Korea had expressed similar concerns after the IRA was approved, seeing it as a risk to investment in these critical sectors. The US has free-trade agreements with 20 countries but not Japan or the EU.

The IRA stipulates that 40% of critical minerals in an EV battery must be extracted from, or processed, in countries with free-trade agreements with America. This figure is set to rise to 80% in 2027, and the rule would have excluded the EU and Japan.

Toyota already fully targeting battery production in US

Among others, Toyota Motor Corporation has decided to invest up to 5,6 billion euros in Japan and the United States toward supplying automotive batteries for EVs. With the investment, Toyota intends to increase its combined battery production capacity in Japan and the US by up to 40 GWh.

In the US, approximately 2,5 billion dollars will be newly invested in Toyota Battery Manufacturing, North Carolina, toward increasing automotive battery production.

In Sakaya, Toyota Motor Manufacturing Turkey (TMMT) will be Toyota’s first European plant to start producing PHEVs and the first to be equipped with a battery production line.

In Total, Toyota has about 12 plants in the US, accounting for 170 000 employees. Nissan, Honda, Subaru, and Mitsubishi Motors, to name but a few, also are manufacturing Japanese cars across the US.