The United States and Japan have agreed to trade in minerals that are key ingredients for making electric vehicle batteries, AFP has reported, citing US trade officials.

This development could be a game-changer for the supply chains in a sector that has up until now been dominated by China, at a time when the production of minerals such as lithium is scarce.

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The latest US-Japan deal includes commitments not to impose export duties on critical minerals shipped to the other country, the US Trade Representative (USTR) said in a statement.

"The United States and Japan share a common interest in strengthening supply chains between like-minded partners and increasing resilience against threats such as economic coercion," the USTR has maintained.

The newly launched Inflation Reduction Act (IRA) stipulates that 40% of critical minerals in an eligible EV battery need to be extracted from or processed in countries that have free-trade agreements with America. This figure is set to rise to 80% in 2027, and the rule would have excluded the European Union and Japan — drawing concern from both parties.

However, the latest deal green signals the processing of critical minerals in Japan to qualify for some US subsidies under the act.

The Treasury Department will issue a notice by the end of this month with proposed guidance on the IRA's critical minerals and battery component requirements.

Officials hope that the deal will ensure the security and stability of the critical mineral supply chain while reducing the dependency on other countries.

The pact covers five critical minerals most needed for EV batteries and will be reviewed every two years, the official added. According to the USTR, the US-Japan agreement also involves a commitment to confer on "best practices regarding review of investments within their territories in the critical minerals sector by foreign entities."

Earlier this month, the US and EU announced the start of negotiations on a critical minerals agreement to enable the relevant resources extracted or processed in the European Union to qualify for IRA subsidies.

The IRA includes $370 billion going towards reducing greenhouse gas emissions, with some investments in the form of tax cuts for companies that invest in clean energy, along with subsidies for electric vehicles, batteries and renewable energy projects — if they are US-made.

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