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US Inflation Reduction Act to Benefit Mexican Automotive Industry

By Sofía Garduño | Wed, 08/10/2022 - 09:57

Mexico’s Ministry of Economy (SE) celebrated that the approval of the US’s Inflation Reduction Act did not discriminate against the manufacture of batteries and electric vehicles in North America. The bill extended the US$7,500 consumer income tax credit for the purchase of new EV and added a credit of US$4,000 for buying a used EV. This bill is expected to pass in the House to be signed afterwards by US President Joe Biden.


“In our region, we produce together to compete globally. We must deepen our productive integration to provide wellbeing to our societies and leave no one behind. We will continue to monitor [the bill’s] passage through the House of Representatives,” said SE.


The bill caps the price at US$55,000 for new EVs, while trucks and vans under US$80,000 can also get the credit. This bill aims to boost investment in domestic energy production and manufacturing. For that reason, the act requires 40 percent of battery components to be sourced from the US or its free trade agreement partners, which include Mexico.  


“Teamwork and coordination of the Ministry of Economy with SEDECO, the Embassy of Mexico in the US and our counterparts were key to not discriminate our automotive industry in the Inflation Reduction Act that was approved by the US Senate and that will go to the House of Representatives,” said Tatiana Clouthier, Mexico’s Minister of Economy.


The Inflation Reduction Act enacts an historic deficit reduction to fight inflation. It also lowers energy costs, increases cleaner production and reduces carbon emissions by 40 percent by 2030. The bill allows Medicare to negotiate drug prices, caps out-of-pocket costs to US$2,000 and lowers ACA health care premiums. The act did not include new taxes on families making US$4,000 or less.


“With this, the US reaffirms the privileged society with Mexico and Canada,” said the Corporate Coordinator Council (CEE).


The North American region has been in the spotlight amid the reconfiguration of supply chains. This region is increasing its attractiveness as companies try to relocate their operations outside of Asia. The USMCA treaty has been crucial to attract new investment to the region. However, there are disputes around the USMCA that the three countries need to work on. Recently, Canada and Mexico requested to establish a dispute settlement panel to address the US’s interpretation of the rules of origin governing the regional value content calculations that must be performed for a vehicle to qualify for duty-free treatment. The USCMA dispute panel met on Aug. 2-3 and the panel’s final ruling will be announced by the end of 2022, as reported by MBN.


Meanwhile, on Jul. 20, 2022, the US requested hearings to discuss Mexico’s energy policies. Canada joined the request. “We agree with the US that these policies are inconsistent with Mexico’s USMCA obligations,” said Alice Hansen, Spokeswoman for Mary Ng, to Reuters. Nonetheless Marcelo Ebrard, Mexico’s Minister of Foreign Affairs, said that the relationship with the US is not at risk. “The fact that we have a variance with the US regarding one topic does not mean that the bilateral relationship will collapse nor that we will withdraw from the agreement,” said Ebrard.


The data used in this article was sourced from:  
CNBC, Ministry of Economy, US Senate, MBN
Photo by:   pixabay , MotionStudios
Sofía Garduño Sofía Garduño Journalist & Industry Analyst