How the United States solved South Korea's problems with electric vehicle subsidies under the Inflation Reduction Act

Chad Bown

No WP23-6, Working Paper Series from Peterson Institute for International Economics

Abstract: South Korea felt "betrayed" when President Joseph R. Biden Jr. signed his administration's flagship climate legislation, the Inflation Reduction Act (IRA) of 2022, into law. This paper first shows how the Biden administration addressed Korea's concerns about the law's effect on its sales of electric vehicles (EVs) in the United States. Thanks in part to the Treasury Department's regulations written to implement the law, Korean exports of EVs to the United States grew even after the IRA went into force. Whether these actions by the Biden administration are enough to assuage the concerns of the Koreans--and other allies adversely affected by the IRA--remains to be seen. Furthermore, the US accommodation of Korean concerns came with tradeoffs by offsetting key incentives Congress may have intended in passing the IRA. The paper examines the potential impact of the law on South Korean battery companies, and it provides an initial exploration into how the Korean government responded to the IRA by adjusting its own policy mix of EV consumer tax credits and industrial policy for its EV plants and battery makers.

Keywords: Electric vehicles; batteries; industrial policy; supply chains; climate; US; United States; South Korea (search for similar items in EconPapers)
JEL-codes: F13 L52 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-tre
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