The Impact of the Inflation Reduction Act on Global Manufacturing

Abstract

In August 2022, the Biden administration of the United States (U.S.) passed the Inflation Reduction Act (IRA), which took effect in January 2023. The plan involves approximately $430 billion in investments, focusing on areas such as climate, healthcare, and tax reform. This marks the largest climate investment bill in U.S. history, with far-reaching impacts on global trade, diplomacy, and supply chain layouts. This paper examines the impact of the bill on global manufacturing. Based on theories such as trade protectionism, government intervention in the economy, comparative advantage, and international division of labor, it employs case analysis to select key industries like electric vehicles and batteries, analyzing the responses and adjustments made by the United States, China, and related enterprises. The study reveals that the Inflation Reduction Act has a dual impact on global manufacturing: On the positive side, it accelerates green transformation, drives down technology costs, and promotes industrialization in emerging markets; On the negative side, it intensifies protectionism, triggers subsidy competitions and resource conflicts, or delays global emission reduction efforts. Future countries need to seek balance across multiple dimensions.