[US Midterm Elections] Republican Party Retakes House, Votes to Repeal IRA Budget on First Day as Majority... Future of IRA Uncertain

Biden Administration Maintains Broad US-Centered Policy Framework but Momentum Drops
IRA Minor Adjustments Possible Amid Republican Opposition... Low Likelihood of Bill Repeal or Revision

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kim Hyewon, Sejong=Reporter Lee Dongwoo] In the U.S. midterm elections held on the 8th (local time), the Republican Party regained the majority in the House of Representatives for the first time in four years, putting a sudden brake on the Biden administration's governance. In particular, attention is focused on the Inflation Reduction Act (IRA), which directly affects our government and companies, as Kevin McCarthy, the House Majority Leader who vowed to "repeal the IRA-related budget on the first day of becoming the majority," is a leading candidate for the next Speaker of the House. However, it is widely expected that the U.S.-centered foreign policy framework, including "America First" and "China containment," will be maintained.

With the House, which holds legislative and investigative powers, handed over to the Republicans, the Biden administration will face strong checks on major policy initiatives. Hwang Junseok, a researcher at the Korea International Trade Association's Trade Support Center, stated, "With the Republicans regaining the majority in the House, President Biden may have to rely on executive orders to block legislation with veto power, making policy implementation difficult."

The IRA, which has drawn criticism from the Republicans as well as allies like South Korea, now faces a greater possibility of rollback from its original form. Although the Republicans' mention of 'amending' or 'repealing' the IRA is unlikely to be realized, since President Biden and the Democrats tout the IRA as their greatest achievement during the term, it is widely believed that the Republicans will oppose it in some form.

Professor Jeong Ing-gyo of Inha University's Department of International Trade said, "Rather than amending the existing enacted IRA provisions, the Republicans will focus on the background behind the Democrats' emphasis on the IRA," adding, "It seems likely they will move toward reducing budgets for decarbonization and other climate crisis response eco-friendly policies."

According to the KOTRA Washington Trade Center, there is a subtle adjustment atmosphere among Washington political circles and local businesses regarding the IRA's electric vehicle origin rules. Considering the current U.S. electric vehicle supply chain reality, the full implementation of the IRA origin rules may be delayed, or exemptions for battery cells, modules, and critical minerals by category or specific countries may be possible.

Kim Hyunsoo, head of the Economic Policy Office at the Korea Chamber of Commerce and Industry, explained, "The possibility of repealing the domestic electric vehicle discriminatory provisions under the IRA is slim even if the Republicans hold the majority," but added, "Key figures within the Republican Party who strongly demand IRA amendments will lead our government and domestic automotive industry to actively prepare countermeasures." It is also known that Hyundai Motor's early groundbreaking last month for the 'Meta Plant America,' an electric vehicle-only new factory in Bryan County, Georgia, is deeply related to the IRA, including the U.S. Treasury Department's detailed regulations.

Additionally, the Republicans are inclined to strengthen export controls and other measures to contain China, which has our companies on alert. In the trade sector, the Republicans criticize the Biden administration's Indo-Pacific Economic Framework (IPEF) for lacking market access provisions and argue that it cannot replace the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the Regional Comprehensive Economic Partnership (RCEP). These are among the reasons why the Biden administration's policy momentum is expected to weaken. Kim Bongman, head of international cooperation at the Federation of Korean Industries, said, "Both Republicans and Democrats share a foundation of protectionism and America First policies aimed at preventing domestic decline in their efforts to contain China," adding, "Regardless of which party holds the majority, foreign policies such as semiconductor export controls will not change significantly." The Bank of Korea pointed out that since U.S. foreign policy is likely to continue America First regardless of election results, it is necessary to strengthen negotiation capabilities in U.S. policy and for the government to support domestic companies in enhancing supply chain investment and technological cooperation with the U.S.

There are also opinions that the resolution of uncertainties in foreign policy after the U.S. midterm elections will have a positive effect on our companies. Choi Woojin, a research fellow at the Korea Development Institute (KDI) Economic Outlook Office, predicted, "Even after the midterm elections, if the U.S. maintains its trade policy framework centered on containing China, it will become more difficult for Chinese companies to enter the U.S. market," adding, "This will act as a long-term positive factor for domestic battery companies and others."

This content was produced with the assistance of AI translation services.