The end of globalization? How Biden's Inflation Reduction Act IRA changed the world | FT Film

The bill I'm about to sign is not just about today. It's about tomorrow. It's about delivering progress and prosperity to American families. The Inflation Reduction Act was the largest investment in clean energy in the history of the world. The Inflation Reduction Act is going to rapidly accelerate our pathway to net zero. A sweeping piece of legislation that is designed to decarbonise the US economy, to reshore supply chains, and also to break dependence on China. It levels the playing field for western producers. It's the largest investment in the history of the United States' solar industry of any kind. The so-called Paris Climate Accord - it's a disaster, a death sentence. It's possible that you could see, in 2024, a re-election of Donald Trump. And at that point, I think all bets would be off. The big question is whether this ends up being a trade war. We thought we were in the era of free-market globalisation. And now we're not. The Inflation Reduction Act is actually a very misleading name because it has very little to do with inflation reduction, particularly in the short term. It's a piece of industrial policy. It's a piece of climate policy. It's a piece of trade policy. It's not a piece of inflation reduction. It's full of tax credits designed to draw in investment into the US economy. And it's all being funded by the federal government over the next 10 years. The IRA includes $370bn worth of tax credits, loans, and grants to incentivise domestic manufacturing. The Biden administration says, you know what? It is important that America makes things. It is important not only that we transition to a greener economy, but it's important to be able to secure supply chains. This is a big shift. This is about a 50-year change in how the economy is going to run. Is this actually going to create long-term viable industries which are more competitive than the Chinese? We have to face the risk that it won't work. And when the subsidies stop, unless they're there forever, the programme won't really have worked. And some of these may turn out to be white elephants. I'm John Podesta. I am overseeing the implementation of the clean-energy provisions of the Inflation Reduction Act, the largest investment in clean energy and attacking the problem of climate change in the history of the world. The impact on emissions of the IRA are expected to be about 40 per cent cut by 2032 if all the tax credits are taken up. At the heart of it was an economic theory. Invest in American technology and manufacturing, power the economy, reduce the dependency the United States had on unreliable single-source suppliers of certain goods and materials. The Chips and Science Act passed first. It's a much smaller industrial policy. It includes around $52bn to incentivise research in semiconductors as well as stimulate semiconductor production in the United States. It's really, in a way, a partner bit of legislation. It's also about reshoring supply chains. According to FT research, the IRA and the Chips Act together have helped stimulate more than $220bn in manufacturing and clean technologies and semiconductors. This will create more than a hundred thousand jobs. It's clearly designed to tell the world that America is back as a major player in world industry and in the climate fight. Sleepy old America is gone. We've already seen over $115bn of investment in clean manufacturing, over $125bn in utility-scale renewable energy. So you have Arizona that's sucking in money from the Inflation Reduction and the Chips Act, the Midwest states like Ohio, Michigan - upstate New York is taking advantage of this. In the southeast, Georgia - the states that may have been once resistant to clean energy and so on for political reasons. I think what you're seeing in Georgia is a bipartisan embrace of the opportunities and investments in advanced energy manufacturing and electric vehicle manufacturing that are being supercharged by these manufacturing and infrastructure policies. We made the initial investment in the United States in 2018. And we're making a much larger expansion after passage of the Inflation Reduction Act. It's about a $2.5bn investment. By the end of next year we're going to collectively employ about 4,000 people directly, across the state. It's the largest investment in the history of the United States solar industry of any kind. We've worked really closely with folks in Georgia and Washington DC over the last five years. The solar manufacturing policies, alongside this broad package of manufacturing incentives, are designed to make Georgia the national and global leader in advanced-energy innovation and manufacturing. Solar technology and solar products are strategic commodities, poly silicon, ingots, wafers, cells, but a significant stranglehold, historically, on the market in China. Our energy security, our energy independence, and our environmental future depend upon our production of these technologies to components in the United States. Solar panels that we make here at this factory are used for both commercial and residential. Now you're going to see where the magic happens. I started my career in manufacturing because I knew I wanted to follow in my parents footsteps, went into textiles-- ladies undergarments. Georgia was not known for advanced manufacturing. Our facility here has transformed the job market. We're keeping students. When they're coming out of school and they're coming to work, they're buying homes here. We want to see the entire supply chain for our product here in Georgia. Products that come out of this facility will contain cells, wafers, and poly silicon that all originated in the United States. A state like Georgia has lots of land. Its labour is relatively cheap. Its governor has been very progressive in terms of offering subsidies on top of the ones that come with the federal Inflation Reduction Act. And developers are arriving in what people are now calling the battery belt in the south. You have Norway's FREYR announcing a $2.6bn factory in Georgia, creating more than 700 jobs. The production-tax credits in the IRA levels the playing field for western producers. The hope is that through the 10 years of the IRA programme, scale has been developed, supply chains get developed. Then western producers can compete one on one with the Chinese producers from that point forward. So our initial project in Georgia, in the US, is called Giga America. We have a site south of Atlanta. The amount of investment will be roughly $2.5bn to $3bn, could go up to around $4.5bn to $5bn. Critics, especially outside the US, have called the Inflation Reduction Act and the Chips Act a new form of protectionism, an extension of what Donald Trump was doing. From this day forward it's going to be only America First. The US is undergoing a bipartisan shift, bringing into America industries in which China is or potentially will be dominant. Biden is doing it through subsidies. Trump did it through tariffs. Now you see companies like General Electric, an American company that absolutely embodied the idea that you could build things more cheaply abroad and then sell them back to Americans. It offshored as much as it could. Now GE is building a new factory in Schenectady, New York. Schenectady, New York, represents a lot of the legacy of General Electric. It's where Edison founded the company. , We're investing $50mn. We're adding 200 union jobs to create what will be the largest onshore wind-and-cell facility in the US. I would like to think that you know they would have picked Schenectady anyways. But probably not. I know the IRA has been a big part of it. So we're in upstate New York. We're probably not the lowest labour rate in the world. It is very good work for the existing skill set that we have, and to bring in all this new blood that can then learn from people who've been building generators and turbines for 30 years. General Electric is an important employer for the Schenectady area, and frankly, depending on what chapter, over the last 20 years, one in which we've been reducing jobs, not adding jobs. I'm actually a third-generation GE Schenectady employee. My grandfather started here in 1952 and retired in the '70s. My father retired after 40 years service in 2010. I worked down the hall with somebody who has five generations. Most of the people in here have a relative who've worked in General Electric. If they're from Schenectady, you know somebody who worked for GE at some point. Schenectady peaked, maybe back in the '60s and '70s, with 40,000 people here. There's still 5,000-plus people on the Schenectady campus. This is by far the biggest investment that I've been a part of in my 26 years here. Factories like to know that there's work in front of them and that they're going to be here for a long time to be sustainable. And to have the business have enough confidence that Schenectady can do this, that we're the right place to put it, is just huge. Developers are listening. They understand that because of these tax credits, they can actually thrive in the US. They can make the profits there. It will have an impact on global trade. It does look protectionist. It is clearly designed to shift production from foreign places to America. And that's ultimately what a lot of protection is designed to do. Some of the architects of globalisation, for example, John Podesta, who is now President Biden's official in charge of the Inflation Reduction Act, he was part of the Clinton administration, opening global markets, and then was part of the Obama administration that did the same, 30 years of American economic policy heading in one direction. Now American policy is about re-industrialising its heartlands even if that means shutting off cheap supplies from elsewhere. It is a fundamentally different approach. We're in conversation with our allies and friends and trading partners, executed a critical minerals agreement with Japan. We have a free trade agreement with Canada and Mexico. We have a free trade agreement with Korea which permits them to take advantage of some of the provisions of the IRA. We're in deep conversation about doing a critical minerals agreement with Europe. What the Inflation Reduction Act has demonstrated to countries around the world, that they can be part of the solution too. They can make those investments. The Inflation Reduction Act has changed the world. We are really at an inflection point. We're moving from a world that has been globalising, a world in which rich countries have been essentially offshoring and outsourcing production to emerging markets and developing countries. The IRA programme is set up to drive green nationalism. Ronald Reagan's attitude to economic policy and his famous remark, "the nine most dangerous words in the English language are - I'm from the government and I'm here to help," that's just dead, and bipartisan dead. The Biden administration thought that it was rejoining the climate fight. Everybody would welcome leadership from the US. In fact, the reaction, especially in Europe, has been quite hostile. It's pretty clearly a violation of the WTO. You could say by now, the WTO is moribund anyway. Who cares? But it's another nail in the coffin. The basic consensus was that the governments create the rules, the framework within which business operates. But governments aren't actually in the competitive arena with their money. Once you move to a world in which they are, everything becomes very uncertain and unpredictable. And it makes co-operation much more difficult. And these were all the reasons why, after the '30s, we tried to create something like the GATT WTO. So it could be very bad for international relations and the international economy. It got a lot of flak from Europeans, which I found kind of amazing because Europe - and many countries, for example - have been complaining for years that America should do more about climate. This bill does mark a fundamental shift away from the market-knows-best strategy. We're going to say climate change is a war that we have to win. Fighting for a clean-energy future requires industrial strategy. And that's not about the market. That's about the state being an actor in the economy and really pushing change that frankly the market hasn't made in the last three or four decades. It's clearly going to encourage European businesses to invest in America. Indeed, it's already happening. It is making the US look more attractive and be more competitive. They're doing it with the fiscal firepower of a unified federal government. And the Europeans, obviously, find it very difficult to respond to that in aggregate because they don't have a federal fiscal power. The concern, of course, is that the response in Europe will generate a subsidy war within Europe. We've already touched off a subsidy where we have a kind of arms race that's been touched off, a green arms race. Do we need subsidies or economic incentives to develop this industrialisation? Yes. There is a risk of a battle of subsidies, even internally in EU, by the way, because of course, the level of development of countries are different. This race to the bottom in internal subsidies could be fundamentally distorting and even, I think, threaten the single market. Everybody knows who will win that subsidy war. Germany will win it because their fiscal position is so much stronger and they have a bigger domestic market. What the IRA has allowed is the US to take a leadership position in the transition. I think it is something that they're striving for. I don't think it necessarily puts the US in a leadership position until you see the scale get built out. What that does for Europe, I think, is challenges some of the jurisdictions in Europe. It has been a wake-up call for Europe on the industrialisation policy, which was not something that you do at European level. It's not an industrialisation force, as it is not a foreign policy force, because of the nature of the institution is not the federation. Where is the space of competitiveness for Europe? And in some cases, Chinese won already in the battery industry or the electric vehicle industry. We may have space. But we have to define this. Can we do that together with the US or independently? I think that's a big question mark. What I hear from a lot of European companies and I hear from European governments as well, is look, the United States is pushing us. We need to get our act together. We want to see rapid deployment of clean technologies in Europe. That's in the world's interest. And that's why we're in dialogue on things like trying to land a critical minerals agreement. There's every chance that at some point the EU and the US are agree on some shared way to source minerals for the energy transition. But for now, the tensions are at the fore. And they could get much worse. It will create trade tension. It is already creating trade tension. We know that nobody can develop on its own. And we need this balance between openness and national development. So it's a very uncharted waters. It could be very dangerous. We are exactly in the format of the 1914s, more protectionism, more tension, more investment in military. That's not bode well. You could imagine retaliation on one side leads to counter retaliation globally in the context in which there's already very bad relations between the western powers and China, and lead to a very dangerous downward spiral in trade and in international relations. What this legislation is intending to do is to ensure that the United States keeps its commitment on climate. And it'll have a very substantial benefit to the global economy. Make no mistake about it. The investments in the United States, driving down the price, will help economies globally deploy at scale. And it's going to be a major challenge to get these factories built and running. Construction groups think the sector needs to fill another 500,000 new jobs just in the next year alone, more labourers than the US actually has available. Quite how the administration fixes that problem is unknown. So what does the Biden administration do then? Does it soften the terms for local labour and so on? Does it start to turn a blind eye to the import of wafers from China for solar panels, for example? I think this obsession, we have to reduce dependence on China, again, can be understood but cannot be an objective in itself. Sometime nationalism is blurring the rational thinking. China remains the factory of the world. For all these parts that will be critical in batteries and solar, China controls almost all of the anodes, the cathodes for batteries. It controls almost all of the lithium processing. It builds almost all the wafers that are used in solar panels. China will remain a dominant supplier to the US and everywhere else in many essential areas. It's really impossible to cut it out. And at some point, I think the Biden administration will have to come to an answer about whether they prioritise the cutting of emissions and doing all this cheaply, which probably means more supplies from countries like China, or whether it really is about re-industrialisation and the climate targets can be delayed. We can't keep the 1.5 objective of global-warming temperature as a limit if we don't do technological co-operation. We need Chinese capacity. If we operate in a very fluid economic environment without this trade tension, we will achieve the climate goal more quickly. To create a transformation in the industrial system, you have to distort markets. One of the big challenges is that once you start doing that you create political allies that want that distortion to continue. American producers of solar panels are more expensive than their overseas competitors. That, along with a bunch of supply-chain issues, means that US buyers of solar power are paying more money than their competitors overseas. That's, over the long term, not good for the green transition because it makes a very promising technology more expensive. I think the Europeans relied on cheap fossil fuels or at least lower-priced fossil fuels from Russia. They regretted that at the end of the day after Russia violated international law and invaded Ukraine. This idea that cheapest is always best opens you up to economic security problems. In the next 20 to 30 years, we need to fully decarbonise. That's going to require a guide and a market guide from government and private investments to work. That's what we see happening right now with the Inflation Reduction Act. China is now the largest emitter in the world, almost double the size of the United States. The United States remains the world's historic largest emitter. We both have to do more. Competition can be healthy in this sector too. It can drive down costs. It can lead to innovation. I think it's also important to realise that it was passed in the follow up of the pandemic, in which supply chains around the world were completely strained. Our supply chains, here in the United States, are going to be as low carbon as it gets because we're getting our poly silicon from a facility in Washington state which has a high degree of hydropower that's powering its grid, meaning that the embedded carbon in the products that we produce here will also be lowered. There are big questions about how the IRA will impact the Global South. The understandable complaint from emerging markets is hey, western world, you had your fun. You had 100 years of polluting. And now you want to change everything. And we have to pay the price even though we don't get the same level of development. And that's a very legitimate criticism. There are countries like Chile, which was a leader in green hydrogen or was poised to become a leader in green hydrogen. Chile can't afford the subsidies that the US has. So its natural advantage of abundant renewable energy has been wiped out. US, like Europe and others, have to buy a lot of critical materials that for the moment are mostly controlled by China. It's not possible just to consider only the national interest and not the necessity for developing countries to, in a way, develop their own industry, and not a new model we have to invent. If not, we will have a lot of tension and a lot of blockage and a lot of competition from China or others. And I don't think we necessarily will win this competition. You could imagine the US and Europe bringing countries in Africa and Latin America into a new trade paradigm where they say, hey, we will help fund some of the clean transition in exchange for guarantees of critical minerals. That's what the IRA does. It says fundamentally, we are going to need some politics, some statecraft, as part of the climate transition. And we're not going to be able to just come up with a carbon price and expect the Global South to pay for it. The climate crisis doesn't care if you're in a red or blue state. It's an existential threat. One of the other really fascinating features of the investment that we are seeing since the passage of the Inflation Reduction Act and the Chips Act is that 80 per cent of the money is going to Republican districts. It is very ironic when Republicans didn't support the IRA and few Republicans supported the Chips Act. Maybe not so good news for the Democrats if they can't take the credit for creating those jobs. The so-called Paris Climate Accord - it's a disaster, a death sentence. It's possible that you could see, in 2024, a re-election of Donald Trump. And at that point, I think all bets would be off. One of the really important features of the Inflation Reduction Act, according to developers and their lawyers when they look at the fine print, is that the tax credits are embedded in the legislation for 10 years. Quite how a future Republican government could unpick them is yet to be seen. Will all of it stay? Probably not. Will there be a big effort by the by a second Trump administration to roll back a lot of regulation, put judges in place that don't want the administrative state to have so much power? Absolutely. So there's going to be a lot of chaos. But the president is the president. And if you saw someone like Trump come in and simply just use all the tools of the executive office to make it very difficult to get things done, then yeah, I think that that would be a real headwind. When the Affordable Care Act originally passed it was unpopular. As people understood that Obamacare was really delivering, it became popular. And I think that will happen with regard to these investments when the jobs are created, when steel is in the ground. The Inflation Reduction Act has put a line in the sand with a post-neoliberal politics in which the market doesn't always know best. There comes a time when the government has a role to play in ensuring public goods, like dealing with global warming. There are big challenges. I won't kid you. We've got permitting challenges. We've got supply-chain challenges, interest-rate challenges. We're investing in this country, we're building things again, that will deal with the environmental consequences of generations of over reliance on fossil fuels. It won't go close to actually achieving net zero globally. Much of the other things that are needed are going to be far more politically difficult than this. There is nobody operating in the clean-energy sector or in the semiconductor sector who thinks that the US can do it alone. Nobody. America does not have all of the means to control all of the supply chains for the clean energy revolution, period. It will be seen as revolutionary in the general view we have of what the western world thinks the right way of doing economic policy is. The Americans, real advocates of free markets and free trade, have said we are going to do it in a different way. I don't think that can happen in the US without changing everything. America has been the exemplar and the shaper of the world order ever since the second world war. We thought we were in the era of free-market globalisation. And now we're not.