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KEI Spotlight

Inflation Reduction Act Roils South Korea-US Relations

October 6, 2022

This article was published on The Diplomat on September 20, 2022.

Despite being one of U.S. President Joe Biden’s biggest domestic wins, the Inflation Reduction Act (IRA) is causing unexpected discord in South Korea-U.S. relations.

Designed to salvage some of the Biden administration’s “Build Back Better” initiative, the IRA was the result of Senator Joe Manchin’s insistence that any new legislation be crafted to reduce domestic inflation. While the legislation utilizes new taxes and negotiating powers to put pressure on some of the sources of inflation, it also provides significant funds to address climate change. One of the key components to that end are tax credits to support the adoption of electric vehicles (EVs) in the United States, but these provisions have also become a source of friction with South Korea.

The EV provisions of the Inflation Reduction Act are seen by South Korea as both a violation of trade rules and contrary to the deepening economic partnership between the two countries. One South Korean official called the legislation a “betrayal” and suggested that it could damage cooperation in other areas of the relationship. National Assembly Speaker Kim Jin-pyo has suggested the legislation, along with the CHIPS and Science Act, could make it difficult for South Korean firms to fulfill their investment pledges in the United States, while a Korean columnist argued that Biden’s trade policy is no better than former President Donald Trump’s “Make America Great Again” policies.

Multiple senior Korean officials have traveled to the United States to raise this issue with Congress and their U.S. counterparts. The issue is also likely to be raised to the presidential level.

The United States has thus far responded positively to Seoul’s call to discuss the issues around the IRA further. Undersecretary of State for Economic Growth, Energy, and the Environment Jose W. Fernandez, for example, said, “We take the Republic of Korea’s concerns seriously and stand ready for serious consultations.” However, U.S. officials have not yet suggested what they may be able to do to ease South Korean concerns.

To read the full article on The Diplomat, please click here.