Buy American, buy American. It’s the President of the United States Joe Biden the idea behind the support package of more than 400 billion euros starting in January.
Biden is planning an industrial revolution, and it’s scaring Europe. The package is gigantic.
By encouraging companies to invest in climate and supporting households’ withdrawal from fossil fuels, the Democratic Party of the United States wants to nudge the economy in a more climate-resilient direction.
The purpose is to reduce US carbon emissions by 40 percent over the next seven years.
The USA seizes dominance in electric cars
European companies threaten to remain bystanders.
In Biden’s support package, for example, US buyers of electric cars receive a tax reduction of $7,500 – as long as the car is of American origin.
Producers of batteries, spare parts and solar power plants are starting to receive huge subsidies for “green” investments on US soil. And that’s not all, a certain part of the raw materials must also come from the United States or its free trade partners.
This may attract European industry to invest in the United States instead of Europe.
For example, the German car manufacturer Volkswagen and the Swedish battery manufacturer Northvolt are already postponed their investments (you switch to another service) in Europe and are now looking to the United States. In addition to generous subsidies, energy is cheaper there. Mercedes-Benz is going in the same direction.
The main destination is China
The motive of the United States is to make the economy more sustainable, more efficient and more American.
Above all, the local administration wants to beat the biggest competitor, China, but now Biden is also reforming the economy at the expense of European partners.
– These [Yhdysvaltojen] elections will tear the West apart, French President Emmanuel Macron said on Thursday (switching to another service) while visiting Biden in Washington.
The EU has been trying to persuade the United States to come along throughout the fall. The United States has already granted an exemption to its free trade partners Mexico and Canada. Buyers get tax discounts on their products.
There have been close negotiations across the Atlantic since August in different formations. The rear limit is coming.
The EU plans to start developing countermeasures if no solution is reached by Monday. At that time, the high-level trade and technology council between the parties will meet.
The possibility of a trade war comes up more and more often in speeches. The EU Commission is pessimistic. German According to the Handelsblatt economic newspaper (you will switch to another service) negotiations are deadlocked.
For example, the German Minister of Economy Robert Habeck demands a “resounding response” from the EU. His French counterpart Bruno Le Maire speaks of a “counterattack”, and demands that the EU take the matter to the World Trade Organization’s WTO.
France is openly pushing for the EU to peck and start competing with its own Buy European program.
In Germany, too, the atmosphere has warmed up to support European industry after the war of aggression against Russia, a German economist estimates Philippa Sigl-Glöckner In an interview with from the beginning of the week.
– The US package is really big in showing the industry that hey, we really want a green transition. The transition doesn’t just happen with private money in Europe either, and that’s why we need a similar program, says Sigl-Glöckner, who is close to Germany’s democratic government.
According to him, it is well known in Germany that not all industry will survive in the future. Change will inevitably come.
– If you want to build new industries, you have to support it from the beginning, because this way you get an advantage of scale. So if you want, for example, hydrogen production, it might be worth helping it get started, says Sigl-Glöckner.
Finns worried
In practice, the United States is violating two WTO rules of international trade. First of all, domestic goods should not be given priority over imported goods.
Second, trade benefits granted to one country should also be granted to other countries. Now Canada and Mexico would be preferred, but not the EU.
The new law in the United States has several entities, laws and support arrangements. What they have in common is precisely the requirement of being from home.
– You get a bigger subsidy or discount if the product’s steel or iron is produced in the USA or all the input is of American origin, one negotiator describes.
Economists and diplomats are worried.
For example, the business world thinks that subsidy competition would be harmful to small countries like Finland.
– The idea that one buys a European can then turn into in practice that one buys a French or a German, Chief Economist of the Finnish Confederation of Business Penna Urrila says.
If the parties to world trade start to poke each other with a spiral of support and exclude each other from their markets, international trade will of course decrease. That would be a big disadvantage for Finland as well.
– This [Yhdysvaltain ilmastolaki] requires a clear answer from the EU, but the cycle in which the protection of one’s own production becomes more common is indeed unfortunate for Finland, says Urrila.
If companies are eager to invest in the United States due to the new law, that money will be taken away from European production.
Negotiators are concerned about the economic and industrial future of the continent: how it will develop as an investment environment and in the field of critical technologies as protectionism increases.
State subsidies tend to increase when the subsidy cycle starts.
– This is the biggest dispute between the EU and the United States since Trump, one official describes.
Another difficulty for the EU is that a compromise has to be made between 27 countries in the negotiations. Of the member states, Germany is practically the only one that can afford such large subsidies.
It intends to support the energy transition in the next four years with 200 billion euros, but the domestic requirement is not as strict as in the United States.
The trade dispute is coming to a difficult seam, as the Western countries are trying to keep the lines straight by supporting Ukraine.
Sanctions against Russia have hurt Europe more than the United States. Energy prices have risen much higher in Europe than in the United States – which does a profitable business importing liquefied natural gas to Europe.
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