Explained | Why is Europe worried about the U.S Inflation Reduction Act?

Source: The post is based on the article “Explained | Why is Europe worried about the U.S Inflation Reduction Act?” published in The Hindu on 7th December 2022

What is the News?

French President has raised concerns over the US Inflation Reduction Act(IRA) which European countries believe is discriminatory to non-American companies. 

What is the US Inflation Reduction Act(IRA)?

The Inflation Reduction Act is a $430 billion package of federal spending, tax breaks, credits, and levies aimed at fighting climate change, reducing healthcare costs and making large corporations pay their fair share in taxes.

Key Provisions of the act

Healthcare: The act extends expiring Medicare subsidies to 13 million Americans and aims to bring down the cost of prescription drugs, for which Americans pay two to three times more than citizens of other countries.

Tax code: The act aims to make the U.S tax code fairer by imposing a minimum tax of 15% on America’s wealthiest, most profitable corporations. 

Electric Vehicles: The act features tax credits for electric vehicles – up to $7,500 for new purchases – that will only apply if the product is assembled in the US and the majority of components are sourced domestically or from a free trade partner.

Tax credit: The Act offers tax credits to build clean technology manufacturing facilities and grants for refurbishing existing auto manufacturing facilities to make zero-emission vehicles.

What are Europe’s concerns about the IRA?

Firstly, EU member countries fear that the IRA tax credits and subsidies to EVs and other green product makers in North America and free-trade partner countries put European companies at a disadvantage.

Secondly, the EU’s own new green plan ‘Fit for 55’ is targeting to cut CO2 emissions from cars by 55% and vans by 50% by 2030 and all emissions from cars by 2035. For this, it will need to significantly increase its uptake of electric vehicles. However, IRA raises fears of automakers moving to the U.S.

What is the US Government’s stand on this?

U.S. President has said that there was room for “tweaks” in the IRA to “make it easier for European countries to participate” and it was “never intended” to exclude cooperating countries.