Subsidies provided by the Inflation Reduction Act (IRA) of 2022—a key policy move of President Joe Biden—are likely to be targeted by Trump. IRA incentives for electric vehicles (EV) and renewable energy are considered particularly vulnerable, given the new government’s stated support of fossil fuel production and criticism of environmental initiatives. While the EV subsidies may indeed be at risk, we think repealing renewable energy subsidies will be much harder to do because many sustainable infrastructure projects have created jobs in Republican states.
The IRA isn’t the only subsidy framework to watch. In fact, the Infrastructure Investment and Jobs Act (IIJA) of 2021 is three times larger than the IRA. The IIJA’s $1.2 trillion of stimulus supports a range of projects including transportation, water, energy and environmental initiatives—and only about a sixth has been released so far. Our research task as investors is to differentiate between subsidies at greater risk of being cut off and those more likely to survive.
For example, investing in critical physical infrastructure is an area of bipartisan agreement that largely transcends the US election. Deglobalization (or multishoring) is leading to manufacturing and related infrastructure (power, water, transportation) investment to support industrial development. An administration focused on accelerating domestic economic activity, by definition, will also support accelerated infrastructure investment. We believe that broad support to invest in US infrastructure could create opportunities for select companies to benefit disproportionately.
Similarly, the bipartisan CHIPS Act—aimed at strengthening the US semiconductor industry—is likely to remain mostly intact, in our view. Passed in 2022 with bipartisan support, the subsidies in this legislation are widely seen as vital to reduce US dependence on overseas technology that is considered vital to national security.
Broadly speaking, companies whose earnings depend on at-risk subsidies must be reassessed critically. In other cases, we may find opportunities in companies with solid businesses that are incorrectly perceived as being susceptible to subsidy cuts.
