Geopolitics of US Inflation Reduction Act (IRA)

By Dr. Mehmood Ul Hassan Khan | Gwadar Pro Aug 31, 2022

Editors Note: The author is Dr. Mehmood Ul Hassan Khan, Executive Director of the Center for South Asia & International Studies (CSAIS) Islamabad and Regional Expert on China, CPEC & BRI. The article only represents the views of the author, and not necessarily of Gwadar Pro.

It has now become “bitter” reality that passing and promulgating of numerous acts by the US government clearly demonstrates that it has been geared-up against China’s immense corporate, energy and technological rise.

Most recently, the US president Joe Biden has signed a new legislation namely “The Inflation Reduction Act (IRA)” which includes so-called large investments in making health care and prescription drugs making that more affordable, fighting climate change and taxing wealthy corporations.

The US Independent economists uphold that the IRA would not be effective to “pull down” the inflation rate. The international media has termed it is a ”slimmed-down” version of the Build Back Better bill, which aimed to make historic investments in the nation’s social safety net.

On the other hand, the White House still believes that the IRA makes the largest investment in combating climate change in U.S. history, lowers the cost of prescription drugs and raises taxes on corporations. But international experts contradict its tall claims.

The US president Biden asserted that the legislation would bring inflation relief to Americans. But one early study shows that in reality, the IRA likely would not reduce prices at all. In this regard, the Penn Wharton Budget Model (PWBM), emphasized that the IRA will not have any impact on inflation.

Moreover, the Congressional Budget Office (CBO), a federal agency that provides budget and economic information to Congress also reconfirms that the IRA will barely make a dent on inflation in the near term and could even nudge it upward. It predicts that it will have a very small effect on inflation in 2022, and in 2023 it will change inflation somewhere between 0.1 percentage point lower and 0.1 percentage point higher than it is currently.

Frankly speaking, the IRA demonstrates Washington's fraught yet isolationist mentality. It is another planned and articulated scheme of arrangements of the US government to contain the Chinese global superiority in terms of diverse productive channels, and integrated persuasions of green energies. Thus the US IRA may ironically end up only inflaming its runaway inflation, further disrupt the global industrial chain, and deter achieving climate goals. So chipping away the global chips and IRA would not yield any substantial economic good for the US government.

The IRA followed the just passed CHIPS Act, which emphasizes how Washington felt it has been intimidated by China's rising tech prowess and its own inbuilt incompetence in maintaining its so-called supremacy in new-energy vehicle (NEV) technology amid a lingering tech war it has launched against the world's second-largest economy. It signals that the US is now “fleeing-away” from a fair and transparent international competition.

However, its catchy provisions point out that to qualify for the tax credit, NEV makers must complete vehicle assembly in North America and source a significant percentage of major battery components, including metals like lithium, nickel and cobalt, from the US or countries that have free trade agreements with the US. Thus IRA is seemingly another failed attempt of the US government to form an “economic bloc” to “block” the Chinese industrial growth and disturb its supply chains mechanism in the world.

So, the IRA is the true reflection of the US hegemonic mentality, coercive economic diplomacy, and conditional political outreach and bares the US' malevolent intentions and malicious plans to suppress the whole high-tech industrial chain in China.

To conclude, it seems that the US “political spectrum’ is economically biased and internationally prejudiced. The joint passing of the IRA by the Democrats and the Republicans has reconfirmed their inbuilt enmity and egoistic approach towards China. It is indeed ‘murdering” of true spirits of international competition, stressing free flow of goods & services, tottering towering globalization and last but not least western hyped multiculturalism.

Moreover, the IRA will only mean higher taxes, more inflated energy bills and more aggressive Internal Revenue Service audits. And the Congressional Budget Office said in an analysis that the Act would do nothing to address the inflation in the US.

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