GARCIA: China Could Cash In On IRS Tax Credits Intended For Americans

(Photo by MANDEL NGAN/AFP via Getty Images)

Eddie Garcia Contributor
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This past week, in a blatant violation of American sovereignty, the People’s Republic of China (PRC) invaded U.S. airspace with its now-infamous surveillance balloon. But while the U.S. needs to ramp up its defenses against the PRC’s hostile activity from above, policymakers must also push back against Beijing’s efforts to infiltrate America from within. One of Xi Jinping’s top targets is America’s manufacturing sector.

In particular, he has his eyes set on America’s fledgling electric vehicle and electric vehicle battery industries. As more commercial and military vehicles and products become electric, it will be incumbent for the U.S. to have secure and reliable EV batteries and components, such as critical minerals, for economic and national security matters.

Currently, China controls more than 75 percent of the global lithium-ion battery production and dominates the global supply of critical minerals necessary for EV batteries. Xi Jinping wants to keep it this way, and one of his strategies is bringing PRC companies to America’s shores. Our political leaders cannot allow this.

We recently saw this first-hand in Virginia, where Ford sought to establish an electric vehicle battery factory operated by the Chinese company Contemporary Amperex Technology Co (CATL). CATL is the world’s largest battery maker, supplying batteries to Ford, Tesla, BMW, and others. Under this arrangement, Ford would own the factory, but CATL would own the technology and manage the factory operations, receiving royalties and fees.

Fortunately, Governor Youngkin stopped this factory from being built in Virginia, calling it a “trojan horse” for China that would harm U.S. national and economic security and make America more, not less, reliant on China for electric vehicle batteries. A joint venture with CATL, which the governor rightly calls a “CCP front,” in the U.S. would be a boon for PRC intelligence operations and corporate espionage. According to China’s National Security Law, “any organization or citizen shall support, assist, and cooperate with state intelligence work according to law” and “state intelligence work organs, when legally carrying forth intelligence work, may demand that concerned organs, organizations, or citizens provide needed support, assistance, and cooperation.”

What makes this arrangement even more outrageous is that these two parties are seeking state-level incentives and loopholes to make their products eligible for tax incentives from the Inflation Reduction Act. If successful, this would mean that U.S. taxpayer dollars from this poorly thought-out legislation would flow to Beijing, not American companies.

While Virginia won’t allow this CCP-front into its borders, other states may. Michigan, led by Democrat Governor Gretchen Whitmer is fighting to bring the factory to Detroit. If Governor Whitmer is successful, it would harm U.S. economic and national security and give the CCP easier access to surveil, manipulate and harm U.S. citizens, businesses, and government agencies. Governors and state lawmakers across the country should make clear that projects that bolster Beijing and weaken American industry are not welcome in their states.

There are also steps at the federal level that must be taken to prevent Chinese companies like CATL from benefiting from American tax dollars. The Department of Treasury and the IRS are preparing to publish proposed guidance for the Inflation Reduction Act’s (IRA) clean vehicle tax credit program that is due in March. This program is a massive waste of money and simply a subsidy for the rich, but worst of all, the CCP may also cash in on it.

This program seeks to incentivize domestic manufacturing by providing a tax credit for vehicles with batteries and battery components, including critical minerals manufactured or sourced in the U.S. or in nations with which the U.S. maintains a free trade agreement. According to the letter of the law, electric vehicles that rely on battery or battery components from “foreign entities of concern,” which includes companies from China, North Korea, Iran, and Russia, would be ineligible for these tax credits. Batteries produced or co-produced by CATL, whether in the U.S. or in China, must fall under this category. If not, China will be further embedded in U.S. industry and have access to sensitive technology and economic data, harming our security interests.

However, an effort is underway calling on the Department of Treasury to broaden the definition of “foreign entity of concern” that would open up a backdoor for companies like CATL to benefit from the IRA. The Department must reject this campaign and issue guidance that includes a definition of a “foreign entity of concern” that prohibits vehicles that include batteries that have critical minerals or components from a foreign entity of concern from receiving any U.S. tax credits. This must expressly exclude arrangements such as the Ford-CATL joint factory.

Congress and the Biden Administration must prevent this bad legislation from being even worse, and ensure that CCP-connected companies cannot benefit from any of IRA’s provisions. U.S. national and economic security depends on it.

Eddie Garcia, U.S. Army (Ret.), has over two decades of service in the national security, defense and legislative communities.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.