Trade war expands between the EU and USA over US investment programs luring industries of the future away from Europe. Managers warn of an “industrial exodus” to the USA.
BERLIN/WASHINGTON (Own report – The trade war is expanding between the EU and the USA over investment programs worth hundreds of billions. According to reports, these programs threaten not only the production of electric cars and their batteries, but also the wind and hydrogen energy sectors – all the industrial sectors crucial to Berlin’s and the EU’s futuristic plans. This is caused by these US measures, including the Inflation Reduction Act, which promise hundreds of billions of US dollars in subsidies, however, granted only for products manufactured in the USA. To take advantage of this boost in subsidies, Washington is coaxing companies from Europe, but also from Japan and South Korea to relocate to the United States. Whereas France is calling for resolute countermeasures, Berlin is playing it down, restricting the EU to negotiations with the USA. According to economists, “a great number of industries of the future” are ultimately at stake. Former Siemens CEO Joe Kaeser even warns of an “industrial and capital exodus from Europe” to the USA.
“Buy American”
The US investment programs, worth hundreds of billions, which the US administration launched over the past year, are still at the core of the conflict. Currently the debate focuses on the Inflation Reduction Act, which provides nearly US $400 billion for decarbonization, particularly for green energy and electric cars.These funds are extremely attractive for the industry. The purchase of electric cars is being subsidized with US $7,500 each. However, only cars produced in the USA are subsidized. This also applies to components, such as batteries. Even their raw materials must initially be mined and processed to 40 and – in the long term – to 80 percent in the United States, or alternatively in a country linked to the USA by a free trade agreement. This excludes China, but also Germany and the EU – not only in regards to individual products but also to complete supply chains. To be able to benefit from these unique investment programs, some companies have already begun to expand within or to set up new sites in the USA: A systematic transfer of significant segments of production structures to North America is looming.
“A Vacuum Cleaner for Investments”
This is not only affecting the automotive industry, including its sub-contractors and battery production. Frist delays are already looming in the planned construction of both, a Northvolt battery factory in Heide and the expansion of the Tesla plant in Grünheide near Berlin, because both companies are prioritizing their US activities. Manufacturers of wind turbines can also hope for subsidies from the Inflation Reduction Act if they produce in the USA. According to reports, EU Commission experts expect that major companies of this sector will transfer their production sites to the USA. Christian Bruch, CEO of Siemens Energy is quoted as saying the industry’s resources for the energy transition will be distributed in the coming twelve months and “if Europe does not react, more will be invested in the USA than here.” An identical development is becoming evident in the hydrogen industry, because of the high subsidies and the much cheaper energy in the USA. Jorgo Chatzimarkakis, Secretary General of Hydrogen Europe, predicts the USA will attract “investments … like a vacuum cleaner.” The fact that this concerns the very branches, the EU wants to develop into flagship energy transition industries with global expansion potential is particularly troublesome. The United States could instead now become the global pioneer.
Costly Cooperation
The US investment programs may have even more severe consequences in East Asia, where they will impact two close allies of the United States – Japan as well as South Korea. Whereas, at least some of Germany’s automobile manufacturers can already benefit from these subsidies, because they are producing in the USA – for example the BMW 330e or soon the Mercedes EQS – this will only apply to the Nissan Leaf, among Asian car producers. The Japanese government lodged a protest through diplomatic channels, to no avail. However, major Japanese producers such as Toyota and Honda have long since been planning to set up electric car and battery plants in the USA. South Korea is more seriously affected. Hyundai, for example, has a few successful electric car models, with which the company is competing with the US’ Tesla. However, these are not being produced in the USA and therefore, are totally excluded from the subsidy programs. This has proven an embarrassment for South Korea’s President Yoon Suk-Yeol. Since he assumed office last May, he has supported Washington’s measures all sorts of measures, for example favoring US chip production, and thereby running the risk of tensions with China. Now he realizes that cooperation with the USA is economically costly for his country. There is enormous anger in Seoul.
“Buy European”
A consolidated resolute approach taken by all affected states, has so far been unsuccessful due to disunity within the EU. France is pressing for resolute action. Back in October, President Emmanuel Macron, in reaction to the US “Buy American” regulations, had made a plea for legislating a “Buy European Act,” to protect the EU market from US competition, or at least for as long as Washington maintains its course. The French EU Interior Market Commissioner, Thierry Breton spoke out in favor of “handling the problem within the framework of the WTO,” possibly even by filing a complaint to the WTO. However, Germany’s government is playing it down. For example, Germany’s Minister of the Economy, Robert Habeck, was quoted to have said that “discussions with the Americans have been launched,” so that we “don’t get into a sort of trade war.” Germany’s Minister of Finance, Christian Lindner, warned that a trade war only creates losers, “no one will benefit from it.” EU Trade Commissioner Valdis Dombrovskis is following Berlin’s line. “We want a negotiated settlement,” Dombrovskis declared. “I am in favor of proceeding step by step. Now we are discussing.” Only then, when “the results do not meet our expectations,” will “we prepare the next step.” Of course, it would possibly then be too late.
Talks to No Avail
In fact, since November 4, a transatlantic task force has been regularly meeting, to find ways of averting damage to the EU, until now – as far as is known – with no tangible results. An amendment to the Inflation Reduction Act is considered out of the question, also because the US Congress must be in favor, which is even less conceivable now, given the results of the latest mid-terms, wherein the Republicans have won a majority in the House of Representatives. Theoretically, changes of the implementation regulations would be possible – but there is nothing to indicate that Washington would agree to anything beyond mere cosmetic adjustments. On December 5, the EU-US Trade and Technology Council (TTC) is due to meet to take up the matter, however expectations are low.
“Industrial Exodus to the USA”
In the meantime, several economists and managers have commented on the dimensions of the trade dispute. For example, Gabriel Felbermayr, Director of the Austrian Institute of Economic Research (WIFO) in Vienna, considers that this conflict overshadows the Airbus – Boeing subsidy dispute, which had involved merely “a single sector,” while in the current conflict, “many industries of the future” are at stake. Former head of Siemens Joe Kaeser was quoted to have said, “to a certain extent” the EU is not only in “systemic competition” with China, but with the USA, as well. If one looks at the US investment programs and at the dissention within the EU, “an industrial and capital exodus from Europe to the USA” is clearly looming.
Courtesy: German Foreign Policy
