The Inflation Reduction Act (IRA) stands at the intersection between tech policy and trade policy. Indeed, almost inevitably the enormous green technology subsidies Congress legislated in the IRA were accompanied by America First–trade restrictions.
This two-part blog series focuses not on the substance of the subsidy or the protectionist IRA provisions but on the conflicts the legislation has triggered between our legislative and executive branches over control of the US international trade and technology policy agenda. Part one will set forth the broader institutional background and history. Part two will focus more deeply on the executive and legislative tug-of-war over contested boundaries in the separation of powers.
As noted
previously
, the IRA restricts eligibility for the huge subsidies (largely through tax credits) to products or components manufactured or assembled in North America—or from countries with which the U.S. has a formal free trade agreement (FTA). The rules for exceptions were badly thought out—or not thought out at all. They sweep in such tech trade “giants” as Honduras, Peru, and Morocco while excluding strategic U.S. allies such as the EU, Japan, and the UK. Most attention has been on the EU, which threatened retaliatory
measures
.
In a belated attempt to mollify close allies, the Biden administration has
put forward
a so-called “workaround.” Secretary of the Treasury Janet Yellen, who has responsibility for the tax credit rules, is attempting to redefine the phrase “free trade agreements,” arguing that the IRA gives no explicit definition. Yellen
seems
to believe in a broad interpretation of such pacts, claiming she “think[s] the word ‘free trade’ was meant to mean reliable friends and partners.” Under her plan, executive powers alone will form the basis of negotiations of IRA pacts with allies, and these pacts will not be submitted to Congress for approval as with traditional FTAs.
Acting on this interpretation, the Office of the U.S. Trade Representative is negotiating “mini-deals” covering crucial minerals for batteries with key allies. It recently
completed
such an agreement with Japan and is pushing hard to complete a similar exception to IRA rules with the EU.
This expansive, open-ended interpretation has produced a substantial backlash in Congress.
In contrast with most other nations, a constitutional imprimatur grants the U.S. Congress full power over interstate and foreign commerce. Since the 1970s, the process for ratifying trade agreements has entailed an agreement for Congress to legislate specific instructions to the executive branch, which then negotiates under these instructions. Congress in turn has agreed to
vote
such agreements up or down, without amendment, within a certain time.
However, Kathleen Claussen of Georgetown University has analyzed the astonishing, under-the-radar growth of trade executive agreements—over 1,200 at last count—negotiated by various U.S. executive agencies in a recent groundbreaking
study
. Though most were highly technical regulatory details, under the Trump and Biden administrations, they have expanded in scope and depth. President Donald Trump negotiated a major agricultural deal with China, and a mini-deal with Japan, that also included new rules on certain goods and services. (President Trump, however, did
submit
the U.S.-Mexico-Canada Agreement to Congress through the Trade Promotion Authority (TPA) process). The Biden administration has eschewed traditional FTAs and asserted even greater authority to conclude executive trade agreements without Congress, including bilateral pacts, the regional Indo-Pacific Economic Forum, and now, the IRA-related trade agreements.
Congress has become increasingly critical of these executive-exclusive deals. On the IRA, Senate Finance Committee Chairman Ron Wyden (D-OR) and House Ways and Means Trade Subcommittee Chairman Adrian Smith (R-NE) have said that the Biden administration has
exceeded
its authority. Smith flatly called the IRA mini-deals “
unconstitutional
.”
In the next installment, I will dig deeper into the chronology of the executive trade mini-deals’ growth and current details of the executive-legislative divide over control of U.S. international commerce and technology policy.
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This article originally appeared in the AEIdeas blog and is reprinted with kind permission from the American Enterprise Institute.
