The enactment of new tax credits for electric vehicles in the Inflation Reduction Act is a centerpiece of the Biden administration's commitment to fight climate change by revolutionizing the way we fuel our trucks and cars. These incentives of up to $7,500 per vehicle will provide a huge boost to clean-car production, making the goal of a low carbon future for the auto industry far more realistic.
But in the haste to ensure such incentives will benefit domestic production, Congress created a daunting new obstacle to that very goal. The law's complex and restrictive sourcing requirements may actually slow domestic EV production, handing a competitive advantage to China, which already has a huge lead in EVs. While this was obviously not the intent, Biden and Congress must work together to implement the act in a way that avoids such a perverse outcome.
While allies continue to fume over the Inflation Reduction Act's North American assembly requirement, perhaps a greater obstacle is the law's restrictive rules on the sourcing of critical minerals essential to battery manufacturing. By mandating that within seven years 80 percent of these minerals be sourced within the United States or from free-trade partners, the law risks bifurcating global pricing, raising domestic input costs for U.S.-based auto companies while lowering them for producers elsewhere. This could render the credit unusable for many U.S. auto producers, creating higher sticker prices and even shortages of our EVs while we watch China, Japan and Europe expand their output, the exact opposite of the IRA's objective.
How bad can this dichotomy become? Analysts broadly acknowledge that we cannot power an EV revolution based solely on the minerals accessible under current rules. And not only EVs require battery production, but solar and wind farms needed to meet higher electricity demand. Moreover, the EV revolution is occurring worldwide, intensifying the scramble to secure long-term supplies of critical minerals. Even with new lithium mines coming on stream, the U.S. will probably produce less than a quarter of future demand for that crucial input. Meanwhile, the U.S. has less than 1 percent of global cobalt and nickel reserves. An even bigger problem is that China is already the dominant world refiner of critical minerals, refining 73 percent of the world's cobalt, 68 percent of its nickel and 60 percent of its lithium.
While some of our free-trade partners, such as Canada, Australia and Chile, have significant reserves of certain minerals, they also have existing markets with long-term buyers. We can count on them for a share of our needs, but locking out other lower-cost suppliers who don't enjoy free-trade agreement status puts us in a perilous position. Many of these countries hold huge shares of global reserves in key minerals. They are crucial to our success, and if we don't bring them inside our supply chain it will only strengthen reliance on China as the market for mining output. Partnership with these potential critical mineral suppliers is crucial to breaking China's stranglehold over global battery production.
So far, Indonesia, the Philippines and Argentina have asked to initiate critical mineral agreement talks with the U.S., and negotiations are ongoing with Europe. Securing critical mineral agreements quickly, as was done with Japan, can be part of the solution to the materials challenge. We must acknowledge that without building a network of critical minerals suppliers the promise of the Inflation Reduction Act from an environmental and jobs standpoint will not be realized. By engaging as many trade partners as possible through critical mineral agreements, the U.S. has a major opportunity to impact the way in which countries exploit their resources, while also securing our own supply chain. Further, this would give us a chance to promote higher environmental and worker standards in these markets vs. China.
In short, if the United States truly wants to succeed in becoming the world leader in EV production and other battery driven technologies, the Biden administration has no choice but to widen the U.S. supply chain and start competing for access to key sources of critical minerals around the world by aggressively pursuing critical mineral agreements with as many trading partners as possible.