WASHINGTON — The United States and Japan have reached an agreement over supplies of the critical minerals used to make car batteries, a deal that will likely put to rest a contentious issue in the relationship with Japan and could be a model for resolving similar disputes with other trading partners.
The agreement provides a potential workaround for the Biden administration in its disagreement not only with Japan, but with the European Union and other allies over the terms of its new climate legislation. The Inflation Reduction Act, which invests $370 billion to transition the United States to cleaner cars and energy sources, has angered some allies who were excluded from its benefits.
While the scope of the agreement is limited, the Biden administration has also promoted the deal as the beginning of a new framework that the United States and its allies hope to build with like-minded countries to develop more stable supply chains for electric vehicles that do not rely as heavily on China. American officials have argued that China’s dominance of the global car battery industry, including the processing of the minerals needed to make the batteries, leaves the United States highly vulnerable.
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According to a fact sheet distributed by the Office of the United States Trade Representative late Monday, the United States and Japan promised to encourage higher labor and environmental standards for minerals that are key to powering electric vehicles, like lithium, cobalt and nickel. The countries said they would also promote more efficient use of resources and confer on how they reviewed investments from foreign entities in the sector, among other pledges.
Katherine Tai, the United States trade representative, was expected to sign the agreement Tuesday alongside Koji Tomita, the Japanese ambassador to the United States. The United States and Europe are separately negotiating a similar agreement.
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Ms. Tai said the announcement was “proof of President Biden’s commitment to building resilient and secure supply chains.” She added that “Japan is one of our most valued trading partners, and this agreement will enable us to deepen our existing bilateral relationship.”
The deal appears to be aimed at expanding certain provisions of the climate legislation, which offers generous tax incentives for electric vehicles that are built in North America or source the material for their batteries from the United States or countries with which the United States has a free-trade agreement. The United States has free-trade agreements with 20 countries but not the European Union or Japan, and foreign allies have complained that the legislation will disadvantage their companies and lure investment away from them.
But since the Inflation Reduction Act does not technically define what constitutes a “free-trade agreement,” American officials have found what they believe to be a workaround. They are arguing that countries will be able to meet the requirement by signing a more limited trade deal instead. Later this week, the Treasury Department is expected to issue a proposed rule clarifying the law’s provisions.
President Biden and the European Commission president, Ursula von der Leyen, announced after a meeting earlier this month that their governments were pursuing a similar deal. But European officials said that arrangement could take more time to finalize, since the European Union must submit such agreements to its member states for their approval.
While the administration argued that key members of Congress always intended American allies to be included in the law’s benefits, some lawmakers have protested these arrangements, saying the Biden administration is sidestepping Congress’s authority over new trade deals.
“The executive branch, in my view, has begun to embrace a go-it-alone trade policy,” Senator Ron Wyden of Oregon, the Democratic chairman of the Senate Finance Committee, said last week, as Ms. Tai testified before the committee. Congress’s role in U.S. trade policy “is black-letter law, colleagues, and it’s unacceptable to even offer the argument otherwise,” he added.