The Inflation Reduction Act (IRA) was signed into law by President Joe Biden on August 16, 2022. It can be seen as a scaled-down version of the Build Back Better Act (BBBA). This legislation was created to stabilize the lives of American citizens amidst global inflation and high prices. Key aspects include curbing the rise in prices of pharmaceuticals and energy, reducing household expenditures, and encouraging the development of the clean energy industry.
The legislation is broadly divided into healthcare, clean energy, and taxation sectors to control inflation. The clean energy initiatives include support for green energy development, tax credits for solar installations, and electric vehicle purchases. In the healthcare sector, it aims to reduce costs for seniors’ prescription drugs and insulin for diabetes patients and ensure health insurance coverage. The taxation sector includes measures like increasing corporate taxes for large businesses.
Inflation, characterized by a significant rise in prices, can make essential living costs unaffordable and hinder overall economic activities, thereby reducing the quality of life. The U.S. government, aware of these issues, enacted the IRA. By focusing on healthcare and taxation, we can understand the mechanisms at play. For instance, capping costs for seniors' prescription drugs and insulin is a preventive measure against further price increases. This is a form of price ceiling, an economic concept designed to protect consumers from excessive price hikes. Additionally, raising corporate taxes during inflation is a fiscal policy measure aimed at cooling down an overheated market. These economic concepts help illustrate how the IRA seeks to reduce and control inflation.
However, the article “Green Economy ①] Inflation Reduction Act (IRA), Is the U.S. Living Alone? (TBS International News, 2023)” suggests that the real focus of the IRA lies in the expansion of infrastructure for clean energy technology and related industries. The law emphasizes clean energy to ensure a better quality of life for Americans, with significant investments in greenhouse gas reduction and renewable energy production.
While these elements are crucial for achieving the U.S. government’s carbon neutrality and climate crisis goals, the underlying intention can be deciphered from the details. The IRA aims for a “green transition” by promoting investment through cooperation between industries and the government, providing rebates for electric vehicle buyers, and offering incentives for green technology development. Ultimately, while it serves to improve Americans’ quality of life, it also functions as a tool for the government to achieve its goals and political purposes.
Given that the IRA was quickly enacted with a focus on American interests, it could impact the global supply chain. It's unlikely that the U.S. was unaware of this potential outcome. As a superpower, the U.S. exerts considerable influence on international production, investment, and resource competition. From another perspective, the IRA can be seen as a measure not only for national development but also for countering other competing nations.
The IRA affects not only the survival of businesses in the U.S. but also trade relations. For example, the tax credit for electric vehicle buyers is contingent on a certain percentage of key minerals in the vehicle's components being extracted and processed in the U.S. The article simplifies this as benefits for buyers of “Made in USA” electric vehicles, indicating potential discrimination against foreign companies and impacts on fair trade. Fair trade agreements (FTA) are crucial for mutual economic growth and resource supplementation, so this situation has sparked a global backlash. Simply put, prioritizing domestic products and benefits reduces the competitiveness of foreign products, shaking the global supply chain.
Moreover, the IRA stipulates a strict limitation on tax credit recipients by designating “foreign entities of concern,” which includes companies under Chinese and Russian jurisdiction. Given the context of the past Cold War and the current neo-Cold War, this condition cannot be seen as devoid of political intentions. The article discusses China’s dominance in key mineral mining, processing, and recycling. However, the U.S., by excluding resources from China from its benefits, aims to counteract Chinese influence, reflecting the U.S.-China hegemony competition. As this rivalry spans national security, maritime territories, and semiconductors, the IRA’s clean energy initiatives also exemplify this geopolitical struggle.
The Inflation Reduction Act, enacted in 2022, may have faded from many people's memories. However, as the pandemic officially ends and the global economy begins to recover, it is crucial to revisit how the Act, coupled with geopolitical competition, poses a threat to the supply chain. The world needs to collaborate and produce economic value through trade, and facing such challenges, it is essential to reflect on the significant impact the Inflation Reduction Act has on the international economy.
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