The Inflation Reduction Act offers hundreds of billions of dollars in subsidies and incentives for clean-energy projects in the United States, including solar-panel factories, battery production, and electric-vehicle plants. By attempting to give an artificial advantage to U.S. manufacturing, it puts allied nations — the U.K., Europe, South Korea — at a disadvantage. French president Emmanuel Macron warned that the Inflation Reduction Act could “fragment the West.”
U.K. prime minister Rishi Sunak’s trip to Washington last week was intended to strengthen economic ties between Britain and the U.S. in response to the Biden administration’s protectionist policies.
Sunak’s trip was a success. The prime minister made concrete progress on leveling the playing field between the U.S. and the U.K. and on putting the U.K. on similar footing with other U.S. allies. The “Atlantic Declaration,” announced last Thursday at a joint White House press conference by Sunak and President Biden, is a milestone in U.S.–U.K. economic relations.
Sunak was particularly interested in reaching a deal on critical minerals. From the text of the Declaration:
With congressional consultation, we intend to immediately begin negotiations on a targeted critical minerals agreement covering the five relevant critical minerals most important for electric vehicles — cobalt, graphite, lithium, manganese, and nickel — that are extracted or processed in the United Kingdom count toward sourcing requirements for clean vehicles eligible for the Section 30D clean vehicle tax credit of the Inflation Reduction Act. We intend to use these focused negotiations to ensure the consistency of our approaches on supply chain diversification and robust labor and environmental standards to support the creation of well-paying jobs with a free and fair choice to join a labor union on both sides of the Atlantic. Through our strong U.S.-UK partnership we will work towards increasing our respective and collective clean energy industrial capacity, boosting electric vehicle production and deployment, and expanding access to sustainable, secure, high-standard critical mineral and battery supply chains.
More on the agreement, as summarized by the Financial Times:
British manufacturers of electric cars using UK-made batteries — or products sourced from countries such as Japan with whom the US has a deal on critical minerals — will qualify for tax credits of $3,750 per vehicle under Biden’s Inflation Reduction Act, his flagship legislation promoting green technology.
Biden has meanwhile committed to ask Congress to approve the UK as a “domestic source” under US defence procurement laws, which British officials claimed will allow speedier and more effective co-operation on new military technology.
The declaration also targets other niche deals, including a “data bridge” to cut red tape for small exporting companies.
The agreement includes a push for the mutual recognition of qualifications for engineers — and later accountants — although this could require state-by-state approval in the US.
In addition to economic cooperation, Sunak wanted Biden to assent to Britain’s leadership in the regulation of artificial intelligence. Biden wholeheartedly backed the prime minister. Regarding AI regulation, Biden said: “We are looking to Great Britain to help lead a way through this. There is no country we have greater faith in to help negotiate our way through this.” Sunak announced that Britain will host the first global summit on AI regulation this autumn.
A U.S.–U.K. free-trade deal would have been better than the Atlantic Declaration. But a potential trade deal is a victim of the wave of populism that has swept over both U.S. political parties. Neither former president Donald Trump nor President Biden have been able or willing to take the political hit from embracing the obvious economic benefits from greater, freer trade with the U.K.
Sunak was wise to read the U.S. political situation as making a trade deal difficult and to focus on what became the Atlantic Declaration. But he shouldn’t stop with this declaration. He should keep pushing to increase U.S.–U.K. trade in areas important to the U.K. And Britain should not give up on a future free-trade deal. America’s protectionist presidents are leaving money sitting on the sidewalks of London and Washington. At some point, this populist moment will have passed and a future president will be open to a trade deal.
President Biden is trying to pull our allies close with one hand while pushing them away with the other. He seeks to strengthen diplomatic and political ties in the Western alliance to counter China and Russia. At the same time, he pushes those allies away with protectionist economic policies. On his visit to Washington, the British prime minister pulled our two great nations closer together. The U.S. and the U.K. will be the better for it.