Tweaking the Inflation Reduction Act Can Strengthen Democracies’ Hand

The one notable remaining fly in the Franco-U.S. ointment—Joe Biden and Congressional Democrats’ Inflation Reduction Act, which boxed France and other European allies out of expanded U.S. electric vehicle and other clean energy products’ development—got a Biden pledge to make a “tweak”. The president made no apologies for actions to create more American manufacturing jobs, but promised not to do so “at the expense of Europe.”

Should the president find a way to follow through on this promise, either through executive action or amended legislation, it would boost ongoing efforts among Western democracies to pull closer together and work in concert to counter the economic and political threats from Russia and China.

As we have written before, a more geopolitically potent path than trying to onshore everything, if democracies are to outcompete authoritarians for economic and political leadership, is an ally-shoring strategy. Ally-shoring means selectively leaning into and rewiring supply chains and increasing co-production arrangements with friends who share our democratic values and global interests. A lot of this is happening organically, as countries and global companies burned by Russia’s attack on Ukraine, and skittish about relying on China for products and components (for both political and supply-chain reliability issues), seek both reliable and politically friendly environments that support economic stability, the rule of law, and intellectual property protections.

Meanwhile, trade between the United States and Europe, which includes a healthy share of intermediate goods (or component parts of finished products) is now booming. The United States is importing more goods from Europe than China this year (a sizeable change from past trends), while becoming a critical supplier of European energy and military hardware. European investment in the United States is also trending upward.