Inflation Reduction Act

Neither the EU nor Japan have current trade deals with the US. US Treasury Secretary Janet Yellen recently announced that she would expect both those countries to have to negotiate new deals if they are to be considered for tax credits under the new Inflation Reduction Act (IRA). The new flagship legislation commits $369bn in tax credits and subsidies to boost clean energy projects however it is not without its limitations, or requirements of manufacturers.


The new legislation enables automotive manufacturers to receive up to $7,500  in tax credits per electric vehicle sale with the restriction that 40% of car parts originate in the US or from a country with which the US has a free trade agreement. After 2026 the percentage or foreign parts allowed will decrease to just 20% of the whole.

Free Trade Agreements in place

The US currently has free trade agreements in place with 20 countries being Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore and USMCA.

The EU, South Korea and Japan have been vocal opposers of the IRA claiming protectionism and anti-competition however the EU has implemented similar regimes itself.

The US consumer market is the largest in the world followed by the EU and China. The US is the third largest market for electric vehicles valued at $9bn after Egypt and Morocco.