Inflation Reduction Act: Making China More Powerful, Diverting Buyback Money, Offshoring

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Following the Senate’s approval of the Inflation Reduction Act, market strategist Louis Navellier offers the following commentary on its wide-reaching impact.

The Inflation Reduction Act

The big news this week is the Inflation Reduction Act that imposes more taxes on U.S. production of coal, crude oil and natural gas, which means that utility bills will be rising to pay for higher taxes. A tax increase on methane emissions is the most controversial energy tax.

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The Inflation Reduction Act is essentially re-regulating carbon dioxide emissions in the wake of the Supreme Court’s landmark decision against the EPA. Regarding carbon dioxide emissions, the U.S. is also following Canada and the European Union (EU) and aiming to cut agriculture emissions. What Canada and the EU have been proposing is switching to organic fertilizers from chemical fertilizers, which is why the protests in the Netherlands by farmers are now expected to spread to Canada. In the end, the Inflation Reduction Act will increase electric bills and keep food prices high, so in my opinion, the name of the bill is grossly misleading.

Empowering China

The Inflation Reduction Act also empowers China, since it includes $30 billion for solar panels, wind turbines and batteries, as well as incentives for geothermal and nuclear plants. There are generous tax credits for buying electric vehicles (EVs). The chief executive of the Albemarle Corporation (NYSE:ALB), Kent Masters, said that the lithium supply will remain tight for years, so the lithium-ion battery shortage is expected to persist for all of this decade. Albemarle is the largest publicly traded lithium producer. The next result of the lithium-ion battery shortage is that more EV manufacturers are expected to follow Ford Motor Company (NYSE:F), Rivian Automotive Inc (NASDAQ:RIVN), Tesla Inc (NASDAQ:TSLA) and Volkswagen Group (ETR:VOW3) into less efficient and heavier iron phosphate batteries, which is dominated by China’s CATL.

So in conclusion, despite China launching missiles in the Taiwan straits for four days and acting badly in the wake of House Speaker Nancy Pelosi’s Taiwan visit, since China dominates batteries, solar panels and processing rare earth metals, it is the real winner in the Inflation Reduction Act.

Please remember that when Ford signed a deal with CATL to provide the batteries it needs to ramp up EV production, it also laid off 8,000 workers at the same time. So in my opinion, the outsourcing of America is continuing and will be accelerated by the Inflation Reduction Act. Naturally, many members of Congress will be talking about all the jobs that will be created in the wake of the Inflation Reduction Act, especially new manufacturing jobs, but there is no way Americans can compete with the Uyghurs in forced labor camps that dominate solar panel manufacturing. As a result, Congress is making China more economically powerful.

Diverting Buyback Money

There is one more thing that I really hate about the Inflation Reduction Act, which is a 1% tax on stock buybacks. I cannot tell you how devastating this is, so I expect many companies may choose to divert some of their stock buyback money into boosting their dividend payments. Since companies can control their earnings per share somewhat with stock buybacks, it will be fascinating how Board of Directors decide what to do with stock buybacks moving forward.

Finally, I should also add that a 15% minimum corporate income tax was also included in the Inflation Reduction Act, so it will be interesting if companies that pay no U.S. taxes, like Tesla, react moving forward. It is possible that some companies may follow Tesla and move more of their operations outside of America.