The Inflation Reduction Act becomes law
US president Joe Biden signed the Inflation Reduction Act (IRA) into law on Tuesday, precisely one week after he signed the CHIPS Act. The IRA packs in 750 billion USD in health care, tax, and climate measures. Though it is significantly trimmed down from the original 1.75 trillion USD Build Back Better plan, Biden has hailed the package as one of the most significant laws in US history.
Maybe so. The IRA promises a big boost to the renewables sector, announcing America’s grand entrance to the global new energy race—one that up to this point China has been largely running solo. Longer term tax credits for wind and solar should help the domestic industry plan investments with greater certainty. Tax credits for clean hydrogen should spur that sector, too. But the big question: Will this work? Will it actually encourage development of new, responsible, trusted supply? Or will it feed additional, inflationary capital into shoring up a flawed system of industrial dependence and offshored harm? There are positive indicators, like Manchin’s domestic sourcing requirements for the 7,500 EV tax credit. There are also danger signals: Within hours of the IRA passing with that tax credit, Ford raised the price of its electric F-150 by up to 8,500 USD. Moreover, as we pointed out last week, the government’s 750 billion USD clarion call is just the first step. The private sector, including carmakers and critical minerals players, must respond with proactive investment in domestic production, too.
Is Made in Vietnam the new Made in China? Ask Apple
Nikkei Asia reported this week that Apple is working on shifting some production of Apple Watches and MacBooks to Vietnam for the first time. It’s the latest move by Apple to diversify its production from China, where unpredictable pandemic lockdowns have thrown supply chains into disarray. While Vietnam is already Apple’s most important ex-China production hub, manufacturing watches and laptops would represent a step up in technical and supply chain complexity.
Apple isn’t the only company moving in this direction. Samsung has relocated its Chinese display production to Vietnam; now, it is investing billions of dollars to do the same with semiconductor components. The stakes are high for Vietnam: The company is eager to position itself as a high-tech manufacturing destination for global companies. If it can deliver on the needs of giants like Apple and Samsung, more tech giants will likely follow, propelling Vietnam’s capacity forward. And stakes are high for global firms, too: After so many years of outsourcing manufacturing to China, will they be able meaningfully to diversify while keeping costs and quality in check? Keep in mind, too, that shifting manufacturing out of China is only one part of the equation. Companies continue to rely on China for upstream inputs and midstream processing; this allows Beijing to maintain a vice grip on downstream manufacturing, even as it moves beyond Chinese borders.
The UK’s doom loop of inflation and discontent