The European Union has opened an investigation into government subsidies utilized by China's EV industry and whether such support violates international trade laws.

China's state news agency pushed back on claims of overcapacity in an April article, which said exports accounted for 12% of China's EV sales last year. It attributed the industry's success to competitive pricing and technology, rather than government subsidies.

After meeting with German Chancellor Olaf Scholz in April, Chinese President Xi Jinping decried protectionism in other countries and said Chinese EV exports have helped ease global inflation and combat climate change.

How the U.S. is addressing the emergence of China's EV dominance has already become a hot-button issue for the presidential election in November.

President Biden has encouraged the domestic expansion with the passage of the Inflation Reduction Act, which includes electric vehicle tax credits for U.S. manufacturers, but not if they are sourcing minerals and materials from "foreign entities of concern," such as China. Meanwhile, presumptive Republican nominee Donald Trump has claimed electric car manufacturing will reduce auto industry jobs, and called for a rollback of the EV-friendly policies enacted during Biden's term.

Politicians from both parties have proposed even harsher tariffs on Chinese-made EVs should they try to enter the U.S. market, prioritizing the protection of U.S. jobs over goals to reduce carbon emissions.

"That will make it even more important for Chinese companies to set up local assembly operations to minimize those costs," said Gregor Sebastian, senior analyst at the New York-based consulting firm Rhodium Group. "A lot of companies are adopting a wait-and-see approach."

Even without Chinese auto imports, the technology within the vehicles has unnerved U.S. officials. In March, Biden announced an investigation into Chinese-made "smart cars" and the data the internet-connected vehicles could collect on American users. Collaborations between U.S. companies and CATL, the Chinese battery-making behemoth, have also been subject to greater scrutiny as tensions between the two countries have worsened.

But China has spent decades cementing its status as a global leader in procuring minerals and developing critical technologies such as EV batteries while the U.S. has fallen behind. That will make it harder now for Western automakers to wholly shut out Chinese suppliers, said Tu Le, founder and managing director of Sino Auto Insights, a consulting firm.

"If automakers are going to build affordable, clean-energy vehicles this decade, the only way that happens is by using Chinese batteries," Le said.

©2024 Los Angeles Times. Visit at latimes.com. Distributed by Tribune Content Agency, LLC.