‘This is Europe’s man-on-the-moon moment’, Ursula van der Leyen told the assembled press a year ago with characteristic modesty. The president of the European Commission presented the European Green Deal (actually drawn up by its vice-president Franz Timmermans) to make Europe a climate-neutral continent by 2050. Two weeks ago, in Davos, Switzerland, he delivered another. A new ambitious climate plan, the Net-Zero Industry Act, aims to ensure that European industry has zero net emissions. But even though the projects were aligned with each other, the atmosphere around it had completely changed: from confidence and ambition to confusion and anxiety.
The reason for this lies in another climate plan delivered between two European projects. That is Joe Biden’s US administration’s deflationary act. This oddly named law provides hundreds of billions in health care subsidies and hundreds of billions in subsidies for green industries and energy production. According to the Biden administration, the legislation would ensure that the United States would almost halve its carbon emissions by 2030 compared to 2005. The legislation was debated, negotiated and negotiated for over a year. The gates of hell were dragged open.
In Europe, hands were initially joined: finally, after years of climate denial and sabotage under Donald Trump, the United States is actively participating in the fight against climate change. Even a cent was paid. But that changed when European politicians returned from vacation to carefully review the law (it was passed in mid-August). $370 billion in climate subsidies for electric cars, solar panels, batteries and other green technologies, but only if they are made in the United States, with raw materials from North American soil.
It has been brewing ever since Europe and America. Politically, relations have not been as good as they have been for years and Germany, Europe’s most important country, is begging American political leadership more than it has in decades. But it is different from economic point of view. US green subsidies are widely seen in Europe as an attempt to steal European jobs and innovative companies. Europe is facing an energy crisis at a time when Western unity is considered most important by all.
But more fundamentally, European discontent is about the realization that the old normal has not really returned. Donald Trump launched a thunderous attack on global free trade, but lost his re-election bid. Since then, there has been much talk on both sides of the ocean about supporting the working class to fight against political discontent and populism. During the Covid recession, there was a lot of talk about it Re-shoring: Bringing production of critical goods back home and ending endlessly long and complex supply chains. After the Russian invasion of Ukraine, much was said about the need to be less economically dependent on authoritarian countries.
How does Europe interact with a stable US policy for the next two years?
In other words, protectionism and industrial politics were talked about. Those words are taken seriously in America, not in Europe. In his speech, van der Leyen spoke about the “need for a free trade agenda” and “the need for stronger supply chains” as if nothing had happened in recent years. “Our economies are increasingly dependent on international trade,” he said. Joe Biden hasn’t uttered words like this in years — and he doesn’t want to. The difference in vision is behind the current friction. German Chancellor Olaf Scholz made this clear. “I still support the idea of globalization,” he said when asked about the Deflation Act and US green subsidies.
That’s basically what it comes down to. If the conflict over US green subsidies escalates, the EU and the US could find themselves in a subsidy race. Free trade devotees like those in the British magazine Economists Warn against this: a race, in their opinion, will only result in higher costs and slower innovation. But it comes from an ideological point of departure: free trade and an open economy are the best path to making the planet more sustainable, and state governance is an obstacle.
It is ironic that green technology is precisely what brings this disagreement to a head. Because the EU wants to see itself as the ‘green leader of the world’. Rather than viewing subsidy competition between the US and Europe as a trade war that would undermine the world’s necessary stability, it is easy to see how such subsidy competition could actually accelerate the world’s stability. A little better could happen to the planet.
Europe is headed here in the coming months talk about For now, the faces are tight: Despite a willing ear in Washington, months of friendly asking if the US law could be amended has yielded nothing for European countries. There seems to be a tendency to push back. But everyone would do well to underline that the US is unlikely to move, or move very little, on this issue. Europeans can shed light on the reasons for this in Gastonia, North Carolina, as Lies Gertz has done in this issue. (Page 32). Or in Columbus, Ohio.
If the EU and the US enter a subsidy race, this will only result in higher costs and slower innovation
On the outskirts of that city, in the heart of America’s belt of abandoned and rusting industry, Biden said it’s time to bury the “Rust Belt” label. He took his new deflationary legislation in hand and told the economically troubled region to embrace new developments in electric cars and other green technology. promised to see a boom. It’s more than cutting ribbons on a new factory. If Biden believes anything, it’s that the Democratic Party must fight to reclaim fiction in regions like these, where many voted for Trump in 2016 and 2020. In his eyes, the future of his party, American democracy, and by extension, the fate of the entire world. At stake.With a bonus: rapidly reducing emissions from America’s large indestructible car fleet.
For Europe, the key question on the table is how Europe will interact with determined US policy over the next two years and beyond. The answer isn’t easy, but it’s time to stop being surprised that America no longer defends the liberal world order it established itself in after World War II. Economist Adam Douce recently pointed this out again. “We’re really at a historic turning point,” he said foreign policy, Asked about open American sabotage and undermining of the World Trade Organization (wto), due to the trade war between the US and China. Many thought Trump’s attack on free trade was an aberration. But it was always a misunderstanding.
In that trade war with China, the US is simply breaking trade rules wto By refusing to appoint the necessary judges to this court, their initiative and Washington are undermining China’s passage into the courtroom. This American approach makes it clear that there is no point in the EU attacking US green subsidies in this way. So the question is very simple: no European subsidies of our own?
The European Commission does. “Europe needs its own deflationary law,” van der Leyen said in December. This has support among some economists. For example, seven of them wrote in a paper for the European Central Bank in November that ‘Europe is underperforming in the race for climate technology’. In recent years, the self-proclaimed green leader of the world has seen green patents for individuals three times lower than the US and four times lower than Japan. The first recommendation of the seven: more subsidies for green technology and green industry development. It also has some support among European government leaders. For example, Emmanuel Macron wants and Olaf Scholes, in his very careful way, dropped hints in that direction.
The only problem is that all these political choices must conflict with the interests of different countries, for example many or, conversely, countries with few high-tech enterprises. A fundamental conversation lies ahead about whether Europe should begin to exclude and antagonize some countries — whether it will join the ranks of the United States against China. So there is a very important conversation about free trade, protectionism and don’t call it neoliberalism.
Europe is gritting its teeth At the hands of ‘friend’ America, we are forced to take a decision on this in a short period of time. Various solutions are possible, from replacing current subsidies to adjusting European state aid rules or to a European purchasing law proposed by France. But one way or another, the result is that Europe will gain more power over the industry of European countries. ‘Perhaps the capitals of Europe do not want the EU, particularly the European Commission, to have too much decision-making power in this area. But they have no choice,” wrote Georgina Wright, an analyst at the French think tank Institut Montaigne.
More Europe, more subsidies and greener innovation. It may not be the path some in Europe would have liked, and perhaps the European path is better, but it is at least the way the world’s largest economy is moving forward. Perhaps something comforting, it shouldn’t be an afterthought: it’s only good for the planet.
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