Think Tank Scholars Say IRA Trade Tensions Inevitable
Panelists and a senior administrative official acknowledged that the Inflation Reduction Act agitated Japanese, South Korean and European allies who saw its tax provisions as protectionist, but the politics made it the only way to ramp up U.S. climate ambition, several said.
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John Podesta, a senior adviser to President Joe Biden on climate, said during an Oct. 11 event hosted by the Brookings Institution that the U.S. and the EU are trying "to have a serious dialogue" about how the two entities can work together to reduce greenhouse gas emissions.
He said negotiators are trying to reach a critical minerals agreement with the EU that would give electric vehicle batteries made with minerals mined, processed or recycled in the bloc access to IRA tax credits.
"Yeah, there’s a certain amount of bitching," he said, but added that the EU is now adding subsidies of its own.
Samantha Gross, a Brookings scholar, said the EU was frustrated by the size of the subsidies. The EU is not a taxing authority, she noted, so even though the EU's economy is comparable to the U.S. in size, "they don’t have the ability to do it the way that we do."
She said she tried to tell those she was talking to in Japan, South Korea and the EU that the protectionist aspects of the EV tax credits "weren’t aimed at our friends and allies in Europe and Asia, those were aimed at China."
Joshua Meltzer, another Brookings scholar on the panel, said that, actually, the drafters of the IRA were trying to drive manufacturing to the U.S. exclusively.
"Originally it was going to be just the United States [auto assembly], and then it was expanded to Canada and Mexico," he said. "Very quickly, it became apparent that for the Europeans, the Japanese, the South Koreans, that this was going to be a problem. It’s clearly a violation of norms," he said, such as the World Trade Organization rules on non-discrimination.
"The administration … seemed to be taken somewhat by surprise this became a trade problem," he said.
Kenneth Lieberthal, a retired Brookings scholar who specialized in China, noted that China is ahead of the U.S. on EV and other green technology, has control over supplies needed for manufacturing that the U.S. lacks, and is able to produce at scale.
He said it's too bad that the Ford CATL EV battery licensing deal has run into political trouble. If U.S. manufacturers don't license technology from China, he said, it will "delay our transition" away from fossil fuels.
"The Chinese leapt ahead in their industrialization over the last 30 years because they recognized they had to learn from the United States and advanced industrial economies," he said, by licensing their technology. "If you are behind, to reinvent the wheel is a very expensive, very long-term approach and very likely to leave you falling further behind."
He said when critics of the IRA say that its emphasis on green tech means the U.S. is becoming more dependent on China, he shakes his head. "We need to be nuanced about this and not categorical about it."