How the Inflation Reduction Act Incentivise European Businesses to Invest in the USA
The world's largest economy in the world is the United States, with a GDP of $21.4 trillion. With its skilled workforce, robust infrastructure, and a wide range of opportunities for businesses, it is no wonder that many foreign investors have taken the step to invest in the USA.
One of the significant investments in recent years has been businesses in Europe investing in the US. And now, with the Inflation Reduction Act, European businesses can see more opportunities to invest in the USA. Let's take a look at how this act is incentivizing European businesses to invest in the USA.
Tax Incentives
One of the key ways that the Inflation Reduction Act is incentivizing European businesses is through tax incentives. The act has provisions that offer tax credits to businesses that invest in equipment or property in the USA. Furthermore, the act also lowers the corporate tax rate to encourage businesses to keep their profits in the USA.
Softening of Tariffs
The Inflation Reduction Act includes provisions that would lessen the trade tariffs between the USA and other nations. This move would benefit European investors in the country, who would have fewer barriers to trade. This would make investment easier and encourage further investment in the US economy.
Improvement in political climate
Under the Trump administration, the political climate was not the most favorable for foreign businesses. With the changing of hands to the Biden administration, there is a renewed push for an open-door policy that would welcome foreign businesses into the USA. This push will lead to a conducive environment for European businesses to step into and invest in the USA.
Increased opportunities for small businesses
The Inflation Reduction Act provides support for small businesses in the US, making it easier for them to thrive. Because smaller businesses are often the backbone of the US economy, this act provides an excellent opportunity for European businesses to partner with small US businesses to enter the American market.
Cost savings and increased profits
Finally, the Inflation Reduction Act will provide significant cost savings to companies investing in the USA. By reducing the cost of doing business, European businesses will be able to allocate more of their resources towards increasing their profit margin. This cost-saving is a significant incentive for other businesses that would be looking to invest in the US economy.
Clean Energy Incentives
The United States is aggressively moving towards achieving net-zero carbon emissions by 2050, and the Inflation Reduction Act plays a crucial role in enabling this goal. With the act in place, businesses in Europe can develop partnerships with clean energy production companies in the United States.
These partnerships will be fundamental to producing long-term sustainable energy at a competitive price, therefore, reducing the cost of production and enhancing the profitability of American businesses. Moreover, the Inflation Reduction Act provides huge tax incentives for clean energy companies that work towards producing energy in a more environmentally-friendly manner.
Funding for Infrastructure Projects
The Inflation Reduction Act provides the perfect investment environment, injecting large sums of money to fund infrastructure projects in the United States. The funds are accessible to both domestic and foreign businesses, making it easier for Europeans to secure funding for their investment plans.
By providing loans and grants, the government encourages companies to incrementally expand their investments for long-term growth. For example, if a business is investing in the production of an innovative energy solution, it can get a loan for research and development, while another business that wants to enhance their distribution channels can expand and develop their supply chains.
IRA and Investments
The Inflation Reduction Act's introduction of the IRA section enables companies to invest in another profitable area: the retirement market. With this IRA investment, businesses can fund their own retirement plans while contributing to their employees' plans.
The IRA is a tax-deferred account that businesses invest in to grow their assets. This incentive is a solid way for European and other foreign businesses to bring their operations to the United States, while also providing long-term benefits to their employees.
Net-Zero Industry Act
The Inflation Reduction Act facilitates the smooth implementation of the Net-Zero Industry Act. The Net-Zero Industry Act requires that all companies producing and consuming energy in the US reduce their carbon footprint to zero by 2050.
The act invests heavily in clean energy alternatives, including wind, solar, and alternative fuels, providing businesses with contracts to supply these forms of energy as part of their own energy consumption. These opportunities are incentives for foreign investors to develop new types of energy and expand the green economy overall.
Relaxation of State Aid Rules to Drive Funding
The Inflation Reduction Act relaxes state aid rules to drive funding, such as tax credits, grants, and other incentives. These rules provide businesses with access to funds while also achieving the objective of creating new jobs and opportunities for American citizens.
Local governments can work together with foreign investors to develop new types of energy solutions that can be scaled up to meet increased demand. Furthermore, these relaxed state aid rules will incentivize companies that are already in the US to develop new strategies for activities such as exporting their products.
Free Trade and Supply Chains
The Inflation Reduction Act provides a highly competitive market environment, and through the Free Trade agreement, supply chain logistics are swiftly developing. By introducing new technology and streamlining logistics, the act guarantees an efficient supply chain that is only getting better.
As a result, this provides ample opportunities for foreign investors to integrate their own companies into the supply chain of the United States, allowing them to capture more market share and reduce overall costs of production by importing resources from Europe.
Europe's Green Deal Industrial Plan
The European Green Deal Industrial Plan's aim to reduce greenhouse gas emissions to net-zero by 2050 complements the Inflation Reduction Act.
The European Green Deal Industrial Plan encourages businesses in Europe to invest in low-carbon industries, and the United States presents itself as an excellent option for marketing and expanding these low-carbon solutions. The collaboration between Europe and the United States, towards a common goal just might lead to the reduction of carbon emissions worldwide.
Conclusion
The American economy has always been an attractive place for businesses to invest. With the recent passage of the Inflation Reduction Act, European businesses are seeing more opportunities to invest in the US economy.
Through tax incentives, softening of trade tariffs, a better political climate, increased opportunities for small businesses, and cost savings, businesses in Europe are incentivized to invest in the USA. Hopefully, with the new act, we will witness more opportunities to strengthen ties between the USA and its foreign investors.
Mount Bonnell Advisors
If you are reading this, then it is clear that you are giving some thought to starting a business in the United States. Or, maybe, you are looking to expand your existing business into the US market. Whichever it is, Mount Bonnell Advisors are here to help.
Click here to learn more about the services we offer.
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