The White House has just confirmed the worst effects of the United States IRA, which has been both praised and criticized in equal parts. A law that helped our country overcome the pandemic and spillover effects of the Ukraine war has ended up creating an Atlantic tsunami. Do you know which continent we are unknowingly impoverishing? You won’t believe it, and even we thought it would be impossible.
United States IRA was long-expected, but there are not only good news
The IRA provides over $370 billion in subsidies and tax incentives aimed at boosting clean energy and promoting US-based manufacturing in strategic sectors like semiconductors. While the goals of the legislation are laudable, the IRA represents the largest ever US government intervention in the economy.
As such, it is radically transforming global markets and trade flows. Within the EU, the IRA is spurring growing alarm over its protectionist nature and massive scale. There are rising concerns that subsidies within the IRA will lure EU firms to relocate manufacturing and investments to the US.
Additionally, the competitive edge provided by US subsidies risks disadvantaging EU industries, from clean energy to semiconductors. Beyond the economic implications, the IRA is also exacerbating geopolitical tensions between the EU and US.
EU officials have criticized the legislation as discriminatory and are demanding a coordinated response. But crafting a proportionate EU reaction is proving complex given close transatlantic ties. Still, if unaddressed, the IRA threatens to undermine relations at a time when unity is needed in the face of shared challenges.
European Union is not satisfied with United States IRA: we´ve created a conflict
The Inflation Reduction Act (IRA) signed into law by President Biden includes over $369 billion in subsidies and tax credits aimed at boosting US manufacturing and industry. A key focus is on subsidies for clean energy, electric vehicles, batteries, and semiconductors.
European leaders have raised serious concerns that these generous subsidies will disadvantage European companies and undermine fair competition. US subsidies could lead to a loss of investment, innovation and jobs in key European industrial sectors.
For example, the IRA provides tax credits up to $7,500 for purchases of electric vehicles assembled in North America. This could shift electric vehicle and battery production from Europe to the US. Automakers like BMW and Volkswagen have major factories in the US and could benefit greatly.
The law also subsidizes US production of wind turbines, solar panels, batteries, critical minerals, and other clean energy technologies. European firms will struggle to match the incentives now available to US manufacturers in these strategic sectors, as China is doing (but in a very different way).
The competition we have created with our trade partner (or rival)
The Inflation Reduction Act (IRA) provides major subsidies and incentives for clean energy technologies and electric vehicles in the United States. This has raised concerns that European clean energy companies will be put at a competitive disadvantage, potentially allowing the US to dominate critical green industries.
The IRA allocates around $370 billion in subsidies, grants, and tax credits to accelerate the transition to renewable energy and electrification of transport in the US. Significant funding goes towards wind, solar, batteries, hydrogen, carbon capture, and electric vehicles.
Experts warn that the generous US subsidies will tilt the playing field in favor of American companies. Without similar levels of government support, EU firms developing innovative renewable energy and EV technologies may struggle to keep pace with their heavily-incentivized US counterparts.
Once again, we see that the impact of the United States IRA is more extensive and geographically diverse than we might have first imagined. However, we must also make it clear that there are few laws at the international level that can compare in ambition, objectives and funding. That said, competition with the European Union has perhaps entered a darker phase.
