With the Introduction of the US' Inflation Reduction Act, my Country is being crushed in the Jaws of a Post-Brexit Protectionist Vice

The Inflation Reduction Act 2022 (IRA 2022) constitutes one of the single largest undertakings of government intervention ever embarked upon by a United States’ federal government.

I would certainly not castigate anyone who has not heard of it as it is not something which has made many headlines in the UK, largely because it is not news which we Britons would welcome in the post-Brexit era. ?

To briefly summarise, IRA 2022 is a package of US federal government measures which offers inter alia, tax breaks, research loans and grants totaling approximately $369 billion to mainly green-tech companies with the aim of having them either set-up or expand their manufacturing operations in the United States. In effect, IRA 2022 aims to persuade these companies to regard the US as the most economically advantageous market in the world to invest in and to plan their future investment strategies accordingly. ?

In response to what is rightly regarded as a protectionist threat coming from America, the European Union has launched its Green Deal Industrial Plan (GDIP) which includes green-tech subsidies totaling approximately €250 billion as a means of countering the effects of IRA 2022. For all intents and purposes, the EU’s main objective here is to avoid an exodus of EU-based companies and manufacturing jobs to the other side of the Atlantic.

So, how has Britain responded to these major and disconcerting trends in international economics?

Following IRA 2022’s implementation, the Chancellor of the Exchequer Jeremy Hunt MP responded by lambasting the package as constituting a 'very real competitive threat' to Britain. He then went on to say that the country would respond with an initiative which is 'different and better'. We wait with anticipation to see what the UK government plans to do to ensure that major tech companies continue to regard Britain as an attractive market to invest in when compared to the US and the EU along with their respective multi-billion dollar/euro economic stimuli. ?

Safe to say though that things do not look overly optimistic in this regard for Britain post-Brexit.

It is true that the UK Labour Party has come up with its own proposal of a ‘Green Prosperity Plan’ (GPP), which would assume the form of a package of government investment in green technology totaling ￡28 billion and which could try and meet the economic threats which have arisen from both West and East. That said, you do not need to be an economist to deduce that, when compared to the staggering interventions from both the US and the EU, such a proposal falls rather short. Indeed, any UK government initiative aimed at countering the effects of IRA 2022 and of the GDIP would fall short. Worse still, the Labour Party has begun to row back on its GPP proposal as there are concerns as to whether even the aforementioned meagre sum would in fact be affordable were Labour to form a government after the next UK general election.

Of course, were Britain to still be a member of the EU then the country would have benefitted from the protective economic umbrella of the EU’s GDIP. This would have in effect acted as a macroeconomic armour belt which would have gone some way towards protecting our economy against America’s spending spree aimed at soaking up as much global investment as possible.

Firmly situated outside of the EU tent, Britain will not however benefit from the EU’s response to IRA 2022. Instead, it is highly likely that major job producing green-tech companies will either reduce investment projects in the UK or even cancel them altogether. This is because they will judge that the huge tax incentives and grants offered by the US and by the EU are too generous to resist and they would as a consequence, be significantly more inclined to choose one of these two markets as targets of new major investment projects. Britain on the other hand, is likely to struggle to attract the investment it needs to thrive in a high-tech and increasingly green global economy.

Let us turn to an example to illustrate the point, that of the green automotive industry. This constitutes a sector which shows great promise for the future with respect to job creation due to the ever-increasing demand for Electric Vehicles (EV) as businesses and citizens alike adapt their consumer habits with the aim of reducing carbon emissions. What IRA 2022 means for this industry is that in the medium to long-term capital investment in EV manufacturing is likely to gradually shift to the US and to the EU with the consequence being that over time large-scale EV manufacturing and the thousands of jobs linked to this sector in Britain are likely to be significantly reduced.

The same could be said about battery production for EV where IRA 2022 will also markedly assist in the rejuvenation of run-down communities in what has depressingly come to be termed as America’s ‘Rust Belt’. It has already begun this process by attracting large Lithium-ion battery producing companies to set up in those parts of the US which have felt left behind by job-loss inducing globalization, and which played a major role in Donald Trump’s presidential election victory in 2016.

It is true to say that what President Biden’s administration is effectively doing is distorting global trade and investment for the benefit of America. But faced with a strong global competitor in the form of China, along with a potentially resurgent Trumpian 'Make America Great Again' movement, the Biden administration is understandably doing what it sees as right for America’s future economic prosperity and political stability. On the other side of the pond, the EU is demonstrating to its citizens via its response to IRA 2022 why it exists as an economic and political supranational institution – that is to protect EU citizens from detrimental economic threats emanating at the global level. ?

As someone who makes it his business to remain optimistic about Britain’s future, I refuse to end this article which makes for quite somber reading on a negative note. Instead, I would rather draw inspiration from the words of the famous Cambridge University economist and intellectual John Maynard Keynes, who is quoted as having once remarked: 'when the facts change, I change my mind – what do you do Sir/Madam?'

Underpinning the intellectual edifice of Brexit was the notion that once freed from the supposed economic fetters imposed on it by the EU, Britain could then pursue a low-regulated and truly global free-market trade policy to her heart’s content which would ultimately lead to enhanced prosperity for her population over time. As the ideologues of the economic right of British politics are however discovering to their chagrin, misplaced utopian fantasies tend to come unstuck when they vacate the political fringe and collide with real world phenomena.

Brexit has taken place, but global economic trends along with their resulting real-world realities have in the meantime undergone a significant shift and do not bode well for Britain’s future.

May I therefore be so bold as to suggest that the time has come for us Britons both young and old, north and south, countryside and city-dwellers to follow Keynes’ example by adjusting our opinions on Brexit where necessary not merely for the sake of ourselves, but for the sake of generations of Britons who are yet to come?

*The author of this article is writing in his own personal capacity. It reflects his views and his views alone, and not those of any employer or any organization in relation to which he currently holds or has held either remunerated employment or voluntary engagement with.