The US ‘Inflation Reduction Act’ – blatant protectionism

US monopolies are hoping to survive the present crisis at the expense of their rivals, but alienating all their allies will ultimately only hasten their demise.

When push comes to shove, the imperialists have no permanent friends, only permanent interests – as was long ago noted by 19th-century British prime minister Viscount Palmerston.

US imperialism, not content, through its policy of sanctioning Russia, with depriving Europe of the cheap Russian gas and oil that facilitated Europe-based industries to operate competitively in the world market, has now delivered another shattering blow to Europe and its competitors worldwide with the passing of its so-called Inflation Reduction Act.

Under the provisions of this act, the US government will provide subsidies to the value of $369bn, with the aim of supporting the production and development of electric vehicles, key minerals, clean energy and power generation facilities, but the legislation restricts “subsidies and tax credits to products made in the USA, or companies operating there. The incentives affect manufacturing and investing in products including solar panels, wind turbines and clean hydrogen.

“Consumer tax breaks, which offer a $7,500 subsidy for purchases of electric vehicles, are treated slightly differently, with Canadian and Mexican products also qualifying.” This consumer subsidy only applies to cars made with parts from North America and/or assembled in North America. (EU accuses US of breaking WTO rules with green energy incentives by Andy Bounds, Financial Times, 6 November 2022)

Masquerading as a measure to promote the reduction of carbon emissions, it is in fact just a ploy to obtain for US industry a competitive advantage at the expense of its rivals.

As is well-known, the production of motor vehicles is one of those most seriously affected by overproduction, so it is perfectly understandable that producers everywhere would love to wipe out their competition.

By affording massive subsidies to US car manufacturers for the production of electric-powered vehicles, the US government hopes to enable these manufacturers to undercut their overseas rivals in price and thus grab for themselves whatever consumer demand is available. This tactic is, of course, absolutely prohibited under the rules of the World Trade Organisation (WTO), of which the USA is a member.

As the China Daily commented: “There is no doubt that these policies will trigger a beggar-thy-neighbour subsidy race, increase the risk of trade frictions among WTO members and undermine global efforts to tackle climate change.” (Editorial: Rethink rule-breaking Inflation Reduction Act, 28 November 2022)

Another effect of the legislation is that non-US manufacturers will move their enterprises to the USA in order to take advantage of the subsidies, thereby causing massive job losses in the countries affected.

But, as we regularly get reminded, rules don’t apply to the USA if they happen to be inconvenient.

The US government spuriously claims that the rules do allow exceptions to be made wherever there is an issue of ‘national security’, and that this applies to the US subsidising its motor vehicle production. Anybody challenging that this is not a situation in which this exception applies is told peremptorily that it is the exclusive right of any country to determine what does and does not affect its security.

Meanwhile, however, the USA is striving on behalf of US agribusiness to prevent the WTO from drawing up rules to protect public stockholding programmes used by other countries that are needed to shield their populations from the threat of starvation should crops fail.

At the WTO’s ministerial conference in Geneva in June 2022, the USA worked to stall negotiations aimed at establishing a permanent solution for such programmes, having the previous March, it is believed, taken up a case against India’s subsidies to farmers that have enabled India to become largely self-sufficient in food production. US imperialism certainly does not consider that it is up to India to decide whether its security interests are adversely affected or not.

The European Union has reacted with considerable dismay, as it is already reeling under the effects of anti-Russia sanctions it has implemented at the US’s instigation, and which are already undermining its competitiveness in the world market by vastly increasing the cost of the fuel it needs for production purposes.

It has published its protest, saying: “If implemented in its current form, the act risks causing not only economic damage to both the USA and its closest trading partners, resulting in inefficiencies and market distortions, but could also trigger a harmful global subsidy race to the bottom on key technologies and inputs for the green transition.”

The EU said that promoting the green transition cannot be done at the expense of other countries, since to be effective carbon reduction must be effected worldwide, not in just one country.

The call for retaliatory subsidisation has, of course, immediately been made. “France has led calls for Europe to respond with state support of its own for European companies, including through a ‘Buy European’ act and large-scale subsidies. While not as vocal about the possibility for a massive subsidy programme, Germany has shown interest in supporting European industry, although its coalition-led government is far from united about how to do so.” (Why the US Inflation Reduction Act has Europe up in arms by Leigh Thomas, Reuters, 5 December 2022)

However, for the moment the European response has been to rely on negotiations to grant them concessions, as there is no way that US imperialism is going to repeal this newly-minted legislation. US president Joe Biden has said he will think about it. But in fact, even if he bothered to do so, his hands are tied. Stratfor considers that “a compromise is unlikely because the act is a central component of Biden’s economic agenda”.

Nevertheless, “The European Union is unlikely to enforce any retaliatory measures against the United States since its member states have no appetite for initiating a Transatlantic trade conflict at a time of mounting economic uncertainty and geopolitical tensions amid Russia’s ongoing war in Ukraine. Taking the case to the WTO would also likely prove costly, time-consuming and ultimately unsuccessful, given the organisation’s effectively paralysed appellate body.” (Assessing Europe’s concerns and potential response to the US Inflation Reduction Act, 5 December 2022)

And what is the reason the appellate body is ‘effectively paralysed’? It is because its judges have to be appointed consensually and since the days of former US president Donald Trump the USA has withheld consent to anybody put forward, so there is effectively no WTO appellate body.

President Trump was motivated by the fact that the WTO sometimes decided cases against the USA – but it would seem that President Biden is in no hurry to put things right. After all, why would he want to restore a body that sometimes challenges the right of US imperialism to do whatever it damn well pleases at the expense of its rivals?

For the moment, it is almost certainly true that the Europeans will not turn on US imperialism in any meaningful way. They won’t pull out of supporting Nato’s war in Ukraine, for instance, despite US imperialism charging an absolute fortune for the liquified natural gas (LNG) that its companies are supplying to make up the deficiency of oil and gas supplies from Russia.

Nevertheless, US behaviour is threatening that sooner or later there will be a breach in the inter-imperialist solidarity of the USA with Europe and its other allies and proxies, such as south Korea, which will also be affected by the so called Inflation Reduction Act.

As Lenin pointed out: “In the realities of the capitalist system … ‘inter-imperialist’ or ‘ultra-imperialist’ alliances, no matter what form they may assume, whether of one imperialist coalition against another, or of a general alliance embracing all the imperialist powers, are inevitably nothing more than a ‘truce’ in periods between wars. Peaceful alliances prepare the ground for wars, and in their turn grow out of wars; the one conditions the other.”

At present, the USA and Europe are allies in Nato’s war against Russia and in preparations for war against China. All parties are hoping that, provided the ‘allies’ can keep it together, Russia and China can be reduced, by peaceful means or by war, to vassal status.

It is time the ‘allies’ of the USA realised that their project is doomed and their interests are best served by abandoning it. All the wars waged under the aegis of US imperialism since 1945 have been a failure, even though waged against much weaker opposition than Russia and China. It is pie in the sky to think their latest nefarious designs will fare any better.