Inflation Reduction Act and the Impact on US Manufacturing

“Inflation Reduction Act” is not the title of a legislative act that you would expect to help in the United States manufacturing sector, but it certainly will. The title of this act is misleading in numerous ways, as the legislation is wide ranging beyond inflation reduction strategies to include climate-change-fighting assistance, drug price support and others.

Funded by IRS tax enforcement as well as corporate taxes, this legislation does not appear to experts to do much to reduce consumer prices or inflation. Still the bill has components that will benefit everyday Americans in many sectors, as well as boost manufacturing. The main areas the bill focuses on include prescription drug price reform, Affordable Care Act subsidy extension and energy security and climate change investments.

This bill is not only good for the planet, but it also helps the US be more competitive with China and the European Union—areas where the US has lost ground over the past few decades related to climate change innovation. This is yet another example of the recent legislation that promotes US manufacturing.

How will manufacturers and related benefit?

Energy security and climate change components of this bill will be a boon to manufacturers in several sectors, trickling to the larger manufacturing ecosystem. 

Electric vehicles’ (EV) demand will rise (on top of already strong growth)—this will benefit the entire supply chain. Domestic sourcing for these products must be used to gain financial benefits. There are many small- and medium-sized manufacturers that make products for vehicles—watch their demand continue to grow even stronger. These areas include:

• Material supply chain for auto-body manufacturing (steel, aluminum and fiberglass)
• Hardware components such as AC and DC motors, power inverters
• Electrical components including semiconductors
• Rechargeable batteries including pushing domestic innovation
• Charging related infrastructure development

Increase in EV production will boost tier two suppliers to meet demand in the automotive, chemical, construction, electronic component manufacturing, energy and utility, finishing services and testing, and robotic and assembly sectors. Saying a “boost to EVs” is far too simple—this will ripple all over US manufacturing.

Wind and solar energy generation will also see benefits. Helped by tax incentives, consumers and businesses will purchase and install renewable energy sources, increasing levels. I personally took advantage and upgraded to heat pumps in my house—the incentives are great, and the power consumption drops, saving money and helping our planet. These replacements of fossil fuel heating and cooling sources with heat pumps will boost the industry manufacturing and creating these devices and the industry to install and support them. Related suppliers, services and distributors will also get a boost. This will benefit the entire renewable energy manufacturing and distribution ecosystem—many of which support numerous industries.

Can we handle this new manufacturing?

It’s not easy right now: not enough skilled workers to fill the many retiring veterans in the space, supply-chain disruptions and higher local costs to operate are forefront on the minds of US manufacturers. You must find efficiencies where you can. Fortunately, today’s modern EAM and CMMS systems (like Brightly’s Asset Essentials) give you the tools you need. A good example is supply-chain: knowing what spare parts you have on hard and what you will need in the near future (preventive and corrective maintenance), you can ensure that you don’t get left with a “stockout” (that dreaded missing spare part when you really need it). This helps reduce cost-and-profit-killing downtime. EAM and CMMS is a huge help for this.

Conclusion

Regardless of this bill’s somewhat misleading title, there is a lot of good stuff in here – both for the planet, the people who live on it and the manufacturers who will support the growth and development of these critical green industries. The wind, solar, and EV industries are on the forefront of innovation and the factories, suppliers and distribution needed to support will also be creating numerous well-paying, higher-tech operational positions to support. As a person who has watched the manufacturing sector for decades, I am thrilled to see the trends we are seeing in this space.