US CHIPS Act hurting its Asian partners

Asia Times ^

[FarCenter]

Though geared mainly at domestic outcomes, the rise of industrial policy in the United States is affecting global supply chains, especially in Asia.

To the extent that they boost investment in the green transition, these policies are globally valuable. Yet they also contain discriminatory measures that harm Asian economies and, arguably, the United States itself.

One searing assessment comes from South Korea’s Hankyoreh newspaper: “The US is morphing from a guardian of free trade into a disrupter … despite being the leader of today’s international trade order, [it] is perfectly willing to dispense with those principles when they no longer seem to serve its national interest.”

These comments refer to two controversial laws: the 2022 Inflation Reduction Act (IRA) and the CHIPS and Science Act. The IRA offers upwards of US$360 billion in incentives, primarily tax credits, focused on electrification and green industries. These include extensive local content provisions.

For example, to obtain a $7,500 electric vehicle (EV) credit, the EV and most of its battery components must be assembled in North America. Critical minerals in the battery must also be largely sourced or refined domestically or from FTA partners.

While the policies aim to draw economic activity and supply chains away from China, they have mixed impacts on other Asia Pacific economies, such as Australia, Japan, South Korea and Taiwan.

[FarCenter]

In the early 19th Century, Great Britain was the dominant global economic power and an advocate of free trade. After about 1870, British manufacturers were no longer competitive with the newly unified Germany or the burgeoning United States. Britain became protectionist and tried to maintain trading advantages within its Empire.

Free trade is an advantage to the dominant economic power. When they lose dominance, they become protectionist.