Current Trade Matters - The Inflation Reduction Act | One Year After

Taking the first-year-anniversary of the Inflation Reduction Act (IRA) into consideration, this piece briefly reviews the impact of President Biden's legislation. Throughout the past year, the IRA has been a subject of debate for many business and political circles. Its transatlantic global implications remain intricate, influencing international business decisions.
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This August marks the first anniversary of the Inflation Reduction Act (IRA). President Biden seized the moment in a speech delivered in Milwaukee in August to emphasize the significance of this occasion. In his address, he presented a compelling array of statistics: an impressive account of 13.4 million new jobs, with close to 800,000 of them being new manufacturing positions within the national boundaries. Furthermore, the inflation rate has shown a substantial decrease, plummeting from last year's 8.3% to a more manageable 3.2%. Siemens has announced plans in August to commence the production of solar energy equipment in Wisconsin. Estimates concerning the expenses associated with the IRA exhibit notable discrepancies. The Congressional Budget Office projects an allocation of $391 billion for energy and climate initiatives spanning a decade. However, Credit Suisse's assessment exceeds this figure substantially, predicting expenses of $800 billion, while Goldman Sachs anticipates an even more substantial cost, nearing $1.2 trillion.

Over the course of a decade, the IRA funds will further be distributed to tax credits aimed at incentivizing the acquisition of electric vehicles, environmentally friendly technology products, and renewable electricity. Additionally, the legislation encompasses provisions for government-sponsored grants targeting projects that promote climate-conscious initiatives. Through this law, the U.S. government is actively advancing its objective of accelerating the shift away from reliance on fossil fuels. As of August 2023, there have been more than 270 new clean energy projects announced, collectively attracting investments amounting to $132 billion. New foreign investments in the cleantech and semiconductor industry are led by companies from Europe and South Korea, with 19 and 20 projects.

The domestic impact of the IRA is undeniable and will most likely increase in the years to come. The act's central focus on addressing inflation and economic growth through significant investments in areas such as infrastructure, clean energy, and healthcare has been made clear. These investments are intended to stimulate the U.S. economy, but they also hold potential consequences for international economic dynamics. Already, investment decisions by German companies are strongly considering the impact of the IRA. This is often to the disadvantage of Germany and Europe as a business location since the U.S. tax benefits in the IRA are tied to high U.S. value-added shares. The full picture, and especially the IRA’s global impact on markets and technological development is not fully visible yet. Nevertheless, taking the national developments within the U.S. – one year after – the IRA has served as signal for the EU’s economic policy in the past months to revamp its strategy to ensure that its economies can remain competitive and hold their ground in global comparison. 

AmCham Germany’s take:

The U.S. and Europe must be aligned. AmCham Germany advocates for economic integration of both markets, countering tendencies of bloc formation and economic isolationism. Global trade will always be integral to the success of both markets. The concept of transatlantic sovereignty underscores the mutual dedication to building a strong alliance with the U.S and working towards common goals in diverse realms. Collaborative efforts between the EU and the U.S. as economic powerhouses are crucial to harnessing synergies, sharing expertise, and provide proper and fair conditions for business development and technological advancement to collectively address the global challenges of tomorrow.

As mentioned in a previous Current Trade Matters piece, the IRA's reverberations have triggered dialogues and initiatives within the U.S. and the EU. While the IRA prioritizes climate action and energy security, its effects on European firms and competition have prompted action throughout 2023. The EU's responses, such as the Green Deal Industrial Plan and Critical Raw Materials Act, underline a shared commitment to bolster economic resilience and decrease reliance on vital resources, illustrating the willingness of both parties to engage in negotiations and adapt for a mutually advantageous outcome. By fostering a strong transatlantic partnership, Europe and the U.S. can unlock their full potential and navigate an ever-evolving global landscape with greater strength and resilience.

Heather Liermann

Head of Department

Membership Engagement & Development