US and Japan Reach Trade Agreement on EV Battery Minerals and Tax Credits

The United States and Japan have announced a trade agreement on electric vehicle (EV) battery minerals, granting Japanese automakers greater access to the US EV tax credit of $7,500.[0] This agreement is seen as pivotal for uplifting battery supply chains and will allow Japanese auto manufacturers to source EV battery materials without having to pay export taxes. The agreement syncs the production labor processes and ensures that made-in-Japan batteries like the ones Panasonic supplies to Tesla would qualify for the new EV tax credits in the Inflation Reduction Act (IRA) without having to wait for a complex free trade agreement that may take years to negotiate.

The IRA requires major battery components and critical minerals to be sourced from countries with which the US has a free trade agreement, and the country aims to reduce its dependence on China, which currently dominates the EV battery industry. The measure provides a $7,500 tax credit for companies that source materials from countries with which the US has a free trade agreement, but that limits providers like the EU and Japan.[1] To qualify for the credit, a portion of the critical minerals used in an EV’s battery must be mined from or processed in a country with which the US has a free trade agreement.

Foreign entities reviewing investments made within the critical minerals sectors of the two countries will follow the best practices established by the agreement. The measures incorporated also aim to encourage the adoption of resource-efficient methods that can decrease the demand for and environmental consequences of extracting critical minerals from virgin materials.[2] The objective of the critical minerals agreement is to foster collaboration in refraining from imposing export tariffs on crucial minerals.[3] The accord encompasses internal steps to tackle the trade impact of non-market policies and practices of other nations on essential minerals.[3] Additionally, it encompasses procedures concerning the evaluation of mineral investments by overseas organizations.

The US and Japan hope the agreement will reduce their dependence on China, which has used resources as a tool of economic coercion.[4] The goal of Tokyo and Washington is to extend this agreement to other nations in the Group of Seven.[5] The deal also requires collaboration to combat “non-market policies and practices” of other countries in the sector and on conducting investment reviews of foreign investments in their critical minerals supply chains.

To make significant investments in electric cars, there will be a need for substantial purchases of crucial minerals, as the cost of an electric vehicle's battery can account for anywhere between 25% to 50% of its total cost.[1] As the Biden administration pushes towards phasing out internal combustion engines through the Inflation Reduction Act, it has become increasingly important to secure a steady supply of vital materials such as lithium, cobalt, manganese, nickel, and graphite.[1]

The agreement between the US and Japan builds on their limited trade accord reached in 2019, and they will review the minerals deal every two years to see if they should end or change it.[6] The US and Japan presently levy no export duties for dealing crucial minerals between their nations, and the agreement doesn't push any trading barriers.[7] The Treasury Department is due to release full EV tax credit guidance within the next day or two, clarifying exactly how much non-US content can be included in EVs to qualify for the full credit.[8] In a white paper released in December 2022, the Treasury Department hinted that it was planning on casting the net further beyond the US by discussing plans to classify cathode and anode materials as processed critical minerals rather than battery components, effectively expanding the number of countries they can be sourced from.[9]

0. “U.S., Japan Sign Critical Minerals Trade Deal Without Meaningful Labor and Environmental Standards” Public Citizen, 28 Mar. 2023,

1. “U.S. inks deal with Japan for critical minerals in EV batteries” Seeking Alpha, 28 Mar. 2023,

2. “US, Japan announce partnership on critical mineral supply chains” Fox Business, 30 Mar. 2023,

3. “US, Japan Sign Agreement to Strengthen Critical Minerals Sup…” MENAFN.COM, 29 Mar. 2023,

4. “U.S., Japan strike trade deal on electric vehicle battery minerals” CNBC, 28 Mar. 2023,

5. “Japan, U.S. Ink Deal to Strengthen Mineral Supply Chains”, 28 Mar. 2023,

6. “U.S. and Japan Strike Deal on Minerals Used in Batteries for Electric Cars” The Wall Street Journal, 28 Mar. 2023,

7. “US and Japan Sign Pact on Crucial Minerals for Electric Cars Batteries – America” Energetica India , 28 Mar. 2023,

8. “US-Japan pact on EV battery materials hints at final Treasury Department tax credit guidelines”, 28 Mar. 2023,

9. “EV materials from Japan may be tax-credit-eligible with trade pact” Green Car Reports, 28 Mar. 2023,

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