IRA and How It Affects Korean Companies
IRA and How It Affects Korean Companies
  • Reporter Yim O-Jung
  • 승인 2022.10.03 01:40
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▲Joe Bide signs IRA / Candorium
▲Joe Bide signs IRA / Candorium

During the COVID-19 pandemic, governments around the world increased the money supply by subsidizing households and companies to prevent an economic slowdown. However, now we have a new economic crisis, inflation. The United States, which dominates the global economy, is no exception. To overcome the immediate crisis, Joe Biden, the president of the U.S., signed the Inflation Reduction Act (IRA) on Aug. 16, 2022. The IRA aims to curb inflation by investing in domestic energy production while reducing deficits, lowering prescription drug prices, and promoting clean energy. The law will raise 737 billion USD and authorize 369 billion USD in spending on energy and climate change, and 300 million USD in deficit reduction.
Through the IRA, the U.S. plans to actively invest in clean energy conversions and climate crisis responses, which are expected to have positive effects on climate change response policies. The act announced that it would invest in supporting the energy industry to expand production in the United States. According to the IRA, only vehicles finally produced in North America will be able to receive a tax credit of 7,500 USD per electric vehicle from 2023. However, some electric vehicle industries that do not use U.S. batteries and core minerals are excluded from the benefits. Also, from 2024, components contained in the battery vehicles that were manufactured or assembled by a foreign entity of concern (which mainly means China) must not be included. From 2025, the vehicle must not include any of the critical minerals contained in the battery that were manufactured or assembled by a foreign entity of concern.
However, the Korean battery industry depends heavily on China for the supply of critical minerals. In this regard, battery industry officials predict that it will be difficult to reduce dependence on China within the deadline set by the IRA law and switch to minerals from the U.S. and FTA signatories.
Because electric vehicles are more expensive to manufacture than internal combustion engine cars, government subsidies are an essential requirement for expanding sales. Hyundai Motor, in particular, produces the entire volume of electric vehicles exported to the United States domestically, so it does not meet the new conditions of subsidizing only the volume produced in the United States. Hyundai Motor plans to establish an electric vehicle plant in Georgia, but it is expected that its price competitiveness will be weakened over the next two years as the plant will only be completed in 2025. In other words, Hyundai Motor, which has recently risen to second place in the market share of electric vehicles in the United States, has faced major negative factors.
Meanwhile, the Korean government is also concerned about the damage to Korean companies and is striving to respond, led by the Ministry of Trade, Industry, and Energy. As the IRA heralded discriminatory treatment in the U.S. market, Korean automakers expressed serious concern. Accordingly, on Sept. 1, the National Assembly passed a resolution calling for equal tax deductions for Korean electric vehicles under the Korea-U.S. free trade agreement. Also, on Sept. 5, Trade Minister Ahn Duk-geun visited Washington, D.C., and held a meeting with U.S. government officials and Congress members. Minister Ahn met Katherine Tai, U.S. Trade Representative (USTR), as well as members of the Senate and House of Representatives to ask for non-discriminatory treatment of Korean companies according to the bilateral Free Trade Agreement. Through the meeting, it agreed to establish a consultation channel between the two countries, which has been in operation since Sept. 16 to continue discussions.