President Joe Biden recently endorsed legislation that would give car buyers $2,500 for buying a union-made electric vehicle (EV) and another $2,500 for buying an EV if it is made in America. A better approach would be to let American car buyers decide what type of car or truck they would like to purchase rather than to pick winners and losers in the automobile market.
This proposed change in the Clean Energy for America bill would expand the existing $7,500 credit for purchasing electric vehicles by tacking on additional $2,500 credits for vehicles built in America plus another $2,500 for union-made vehicles. All told, it would allow for up to $12,500 in purchasing credits.
It would be a mistake for the federal government to pick winners and losers among American workers based on whether they choose to join a union. According to Alliance for Automotive Innovation statistics, this proposal would subsidize cars made by roughly 93,000 union auto workers at the expense of cars made by 83,000 non-union auto workers in Alabama, California, Georgia, Indiana, Kentucky, Mississippi, Ohio, South Carolina, Tennessee, and Texas.
The subsidy for union-only vehicles appears to be an effort to gain support from labor unions for electric vehicles. The United Automobile Workers (UAW) union has been wary of electric vehicles, noting that “EV powertrains have much less mechanical complexity than ICE (internal combustion) powertrains. This simplicity could reduce the amount of labor, and thus jobs, associated with vehicle production.” One is reminded of Milton Friedman’s response to a Chinese official regarding a directive for workers to dig a canal using shovels instead of heavy machinery in order to support more jobs: “If it’s jobs you want, you should give these workers spoons, not shovels!”
As a result, the UAW has a history of hostility toward electric vehicles. For example, when the UAW underwent a nationwide strike against General Motors in 2019, a key demand was reportedly that GM build traditional (rather than electric) vehicles in U.S. plants.
But with Sen. Debbie Stabenow (D-MI) tying new EV subsidies to union and American work, the UAW has been much more enthusiastic. This time around, the UAW crowed that, in proposing these additional credits, “Debbie Stabenow and Senate Democrats stood up for the American worker.” Workers that haven’t made a voluntary decision against joining a union, that is.
The additional $2,500 credit for U.S.-made vehicles raises more concerns. The United States has historically led efforts to encourage countries to adopt domestic policies that do not discriminate between domestic and foreign goods. A credit that is only available to U.S.-assembled vehicles would violate our World Trade Organization (WTO) commitment to follow this national treatment standard, potentially leading to retaliation against U.S. exporters.
When President Biden endorsed new EV handouts at the White House earlier this month, he was joined by executives from GM, Ford, and Stellantis (formerly Chrysler). Notably absent was anyone from the world’s largest EV manufacturer, which happens to be based in the United States (and whose workers have chosen not to join a union.) Upon realizing he was the odd man out, Tesla CEO Elon Musk tweeted that it “seems odd that Tesla wasn’t invited.”
Moreover, even if this bill became law, its initial benefits would be limited. In 2020, fewer than 10 percent of EV purchases would have qualified for both the union-made and American-made subsidies. That means that these incentives could drastically distort the market, reshaping it based on little more than policymakers’ mercantilist, union-friendly whims.
Americans should be free to choose a Tesla Model 3 made in the USA by non-union workers, a Chevrolet Bolt made in the USA by UAW workers, or a Ford Mustang Mach E made in Mexico based on their own preferences and needs, not nudged in a certain direction based on the desires of DC politicians. That’s especially the case when the push is led by a Senator whose state is home to the headquarters of Chrysler, Ford, and GM.
Car buyers will be better off if these protectionist and discriminatory expansions to EV credits never make it into law.