China vs US: World's biggest car markets on collision course over production

Cars manufactured locally are eligible for a number of incentives in the United States with President Joe Biden signing the dotted line on Inflation Reduction Act (IRA) recently. While this means that manufacturers who have production facilities in the US would benefit as incentives would make their products appeal better to potential customers, those who don't have factories here are likely to miss out. And this isn't going down too well with several countries with China being the latest to call IRA ‘discriminatory.’

Many manufacturers have bases in China and export units from here to global markets which at times include the US. But IRA could mean such manufacturers may increasingly look at shifting base to the US to benefit from incentives on their products. According to Bloomberg, China's Ministry of Commerce has taken a stern view. “It (IRA) discriminates against similar imported goods and is a suspects breach of the World Trade Organization principles," spokesperson Shu Jueting reportedly said. “China will continue to assess and evaluate implementation of the legislation and will take measures to safeguard its legal interests when necessary."

China and US are two of the world's biggest automotive markets as well as production hubs. China produces around 1.5 million passenger vehicles each year while the US manufacturers around half of that. Most of the vehicles produced in China are for the local market even though the share of exports is rising. But while the rivalry is intense, the IRA hasn't been seen too kindly by South Korea, a key US ally, either. A senior official in the country's government even termed it ‘a betrayal.’ (Read more here)

South Korean auto giants like Hyundai and Kia do big business in the US but unlike many of their rivals, do not have a manufacturing facility here. There is a concern, therefore, that Hyundai and Kia models may not appear as attractive as others which benefit from incentives. Last week, media reports highlighted that Hyundai is now looking at establishing a production facility in the US.