Are the electric vehicle subsidies too mercantilist?

That is the topic of my latest Bloomberg column, here is one part:

The bill also has mercantilist elements, which are not ideal from a climate standpoint. The subsidies apply to North American vehicles only, and the battery components must be increasingly American over time, not allowing Chinese components. So to the extent the policy is effective, it will slant the market in the direction of American products.

That is hardly a surprising feature of US legislation. Still, US producers may not be best situated to solve the problem of affordable, scalable electric vehicles. Is it so smart to push the critical growth in electric vehicle production into a relatively high-wage market?

Some commentators have suggested that Korean automakers Hyundai and Kia will be the leaders in electric vehicle production. But they may see their biggest innovation and productivity gains outside of North America, possibly in Europe or India.

Keep in mind that climate change is a global problem; cutting back on US emissions will do only so much. This legislation could well lead to lower emissions in the US but make them marginally harder to achieve in the rest of the world, thereby reducing its effectiveness.

It is no mystery why American legislation would have provisions that subsidize American consumers and businesses. But political expediency is an explanation, not an excuse. Climate change is a global problem that demands global solutions.

Much of the rest of the column considers whether the subsidy will lead to a higher quantity of electric vehicles produced, or simply a higher price (it depends, as usual!).


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