[Summary] US Senate Passes $558 Trillion 'Inflation Reduction Act'... Battery and Electric Vehicle Benefits Expected

Chuck Schumer, Democratic Senate Majority Leader, is speaking at a press conference on the 7th (local time) after the Inflation Reduction Act passed in the U.S. Senate.
[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Jo Seul-gi] Ahead of the U.S. midterm elections this November, the $430 billion (approximately 558 trillion KRW) 'Inflation Reduction Act (IRA)' pushed by the Joe Biden administration has passed the Senate hurdle. The bill focuses on injecting large-scale funds into climate change response, energy security, and drug price reductions, while imposing a minimum 15% corporate tax on large corporations to secure funding.

With massive investments centered on eco-friendly businesses, sectors such as batteries, electric vehicles, and solar panels are expected to benefit. New opportunities are anticipated for Korean automobile and battery companies as well. However, there is also the challenge of increasing North American production while reducing dependence on raw material supplies from China.

◆ 50-50 Split with Vice President Casting Vote... House Expected to Pass This Week

On the 7th (local time), the U.S. Senate passed the bill in a floor vote with 51 in favor and 50 against. With Democrats and Republicans each holding 50 seats in the Senate, Vice President Kamala Harris, who serves as the Senate President and holds the casting vote, voted in favor. The bill is expected to be voted on in the House around the 12th, followed by the President's signature and enactment. Since the Democrats hold the majority in the House, its passage is virtually assured.

President Biden issued a statement immediately after the bill's passage, saying, "The Senate Democrats voted to lower prescription drug costs, healthcare, and everyday energy expenses while reducing the deficit, and finally making the wealthiest corporations pay their fair share." He emphasized, "I ran for President promising to work for American families, and that is what this bill does."

The IRA is considered a scaled-down version of the 'Build Back Better (BBB)' plan that President Biden has pursued since the beginning of his term. Specifically, it allocates about $369 billion to climate policies, including expanding wind and solar power production and providing tax credits for electric vehicle purchases to reduce greenhouse gas emissions by 2030. Additionally, $64 billion is budgeted for nationwide health insurance aimed at lowering prescription drug prices. To fund these initiatives, the bill includes provisions to impose a minimum 15% corporate tax on large companies and strengthen IRS tax audits.

◆ 'Biden's Victory' Ahead of Elections... Questions Remain on Inflation Relief

During the voting and debate process that began the day before, some policies initially pushed by the Democrats, such as free kindergarten education, were ultimately excluded. The Democrats applied the budget reconciliation process, which allows the bill to pass with a simple majority, avoiding the filibuster rule. Senate Majority Leader Chuck Schumer said, "It was a long, tough, and winding road, but we finally arrived," and praised the Inflation Reduction Act as "one of the defining legislative achievements of the 21st century."

Especially with the midterm elections just months away, the bill's passage has been widely regarded as a "political victory for President Biden." Analysts suggest that facing a decline in approval ratings due to worsening economic conditions, President Biden and the Democrats will use this bill as a stepping stone to win voter support.

However, questions remain about whether it will effectively reduce the soaring inflation in the U.S. The Democrats have claimed that the bill will reduce the federal deficit by more than $300 billion.

On the other hand, Republicans argue that the impact on inflation will be minimal and that the corporate tax increase will reduce business investment, leading to slower growth and recession. Contrary to its name, they say the large-scale fiscal policy could actually fuel inflation. Senate Minority Leader Mitch McConnell stated, "Raising hundreds of billions of dollars in taxes during a recession will cost jobs," and accused the Democrats of spending trillions to prove they don't care about the middle-class economy.

On the 7th (local time), Vice President Kamala Harris, who played a casting vote role in the U.S. Senate's Inflation Reduction Act vote
[Image source=Reuters Yonhap News]

◆ Benefits for Batteries, Electric Vehicles, etc... Korean Companies Likely to Accelerate Investment in the U.S.

By sector, large-scale funding for climate response and supply chain construction is expected to give a significant boost to eco-friendly businesses such as batteries, electric vehicles, and solar panels in the North American region. Among U.S. companies, Tesla and GM are expected to benefit immediately from the accelerated popularization of electric vehicles.

Battery and material companies from various countries supplying these firms are also expected to see improved demand. Bloomberg News named electric vehicle and renewable energy companies as winners of the bill's passage, while citing technology and pharmaceutical companies facing tax increases as losers.

Accordingly, Korean companies' investments are also expected to gain momentum. Since the tax credit rates vary based on the North American manufacturing ratio, companies are likely to expand their investments in the U.S. while intensifying efforts to reduce dependence on raw materials from China.

During the bill's promotion process, the U.S. openly conveyed a message to isolate China from the global supply chain. A representative example is the exclusion of China's CATL, the biggest competitor to Korean battery makers, from support. Following U.S.-China tensions worsened by House Speaker Nancy Pelosi's recent visit to Taiwan, CATL reportedly put its North American investment plans on hold. On the 3rd, Bloomberg News cited multiple sources familiar with the matter, reporting that CATL decided to postpone the announcement of its multi-billion-dollar North American factory intended to supply batteries to Tesla and Ford until September or October.