How American Is It? The Inflation Reduction Act of 2022 and its Impacts on the International Trade of Electric Vehicles

Abstract

The Inflation Reduction Act was passed by the United States government on August 16th, 2022. In an effort to bolster domestic production and consumption of electric vehicles, Section 30D of this sweeping bill provided tax credits of up to $7,500 for consumers who purchased electric vehicles meeting several manufacturing and component sourcing requirements. Going beyond the common portrayal of the Section 30D consumer tax credits as industrial policy instruments, this thesis considers these electric vehicle tax credits as trade policy instruments by examining how the stringent eligibility requirements outlined under Section 30D subsequently affect the United States’ trade flows of electric vehicles, critical minerals, and battery components. To conduct this analysis, fixed effects difference-in-differences models are employed to examine changes in the trade flows of the products of interest, causally induced by respective eligibility requirement enactments. The results reveal realized impacts on the relative differences between the trade flows of eligible and ineligible electric vehicles within the three years following the initial implementation of the Inflation Reduction Act. Estimations are the most robust for the analysis of electric vehicle imports, with little to no changes observed in the trade flows of most critical mineral and battery component products. These findings suggest that the Inflation Reduction Act Section 30D electric vehicle consumer tax credits had implications as a trade policy instrument and drove meaningful impacts on reshaping the import flows of electric vehicles.