The United States and Japan have signed an agreement to strengthen and diversify critical minerals supply chains while promoting the adoption of electric vehicle (EV) battery technologies.

Building on the 2019 US-Japan Trade Agreement, the critical minerals trade agreement will grant a new $7,500 US EV tax credit to Japanese automakers on EVs made with metals processed in Japan, under the US Inflation Reduction Act (IRA).

Aimed at reducing the US’ greenhouse gas (GHG) emissions by up to 35% by 2030 compared to 2005 levels, the IRA provides tax credits for companies that source components and critical minerals from free-trade agreement nations.

US Trade Representative Katherine Tai said: “Today’s announcement is proof of President Biden’s commitment to building resilient and secure supply chains.

“Japan is one of our most valued trading partners and this agreement will enable us to deepen our existing bilateral relationship.

“This is a welcome moment as the United States continues to work with our allies and partners to strengthen supply chains for critical minerals, including through the Inflation Reduction Act.”

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By GlobalData

The latest agreement aims to reduce the two countries’ dependence on China for critical minerals, including lithium, nickel, cobalt, graphite and manganese, as well as to address “non-market policies and practices” of other countries impacting critical minerals trade.

The agreement also outlines new commitments such as the non-imposition of export duties on critical minerals; reviewing investments within their territories in the critical minerals sector by foreign entities; among others.

The US is currently in talks with the EU for signing a similar trade agreement, reported Reuters.

However, the pact has drawn criticism from Senate Finance Committee Chairman Ron Wyden and House of Ways and Means Committee ranking member Richard Neal, calling it “unacceptable”.