I’ll explain the ends and risks of Biden’s protectionism with the IRA. Speak the prof. Pelanda
What Biden's Inflation Reduction Act hides, the protectionism of the Americans, the concerns of Europe and Japan, the geopolitical scenarios. Conversation with Carlo Pelanda, analyst, essayist and professor of economic geopolitics at the Guglielmo Marconi University
The Inflation Reduction Act? It is a measure that supports the protectionist orientation of the US electorate but which above all follows the will of the US to bring back home some strategic productions according to the principle of reshoring after decades of uncontrolled relocations.
These are the words of Carlo Pelanda , analyst, essayist and professor of economic geopolitics at the Guglielmo Marconi University, who in this conversation with Start Magazine takes stock of transatlantic relations and the frictions between the US and the EU over IRA that have also pushed a personality moderate like our Economy Minister Giancarlo Giorgetti in calling for the launch of a European IRA.
Prof. Pelanda, with IRA the Americans subsidize their own strategic industries. Is it a scandal?
I would say absolutely not. The provision is in line with a long-established trend, which is that of reshoring , i.e. the desire to bring a whole series of critical manufacturing products back to the United States. In this sense, the IRA provides incentives to US producers according to the concept of "Buy American".
But isn't that called protectionism?
There is certainly a component of protectionism, which was exacerbated by the Trump administration and is now back with Biden. Both presidents found themselves pursuing the same dual objective, which is on the one hand to fight the deindustrialization of the USA and on the other to reduce dependence on China, in particular for the import of semi-finished materials.
But the Europeans were furious. Was this not foreseen in Washington?
There is awareness that this type of legislation tends to limit European exports and therefore needs to be modified in some way to avoid friction with the allies, an issue which is the subject of a specific negotiation which is underway – the first meeting was held last Monday -. We know that the Biden administration has made exceptions for Canada and Mexico. The idea now is to grant the same derogation to the European Union. However, in America the position according to which Europeans should adapt and transport their production to the USA is very strong.
Some in the European Union consider it necessary to resort to the WTO. Is this a realistic assumption?
Absolutely no. It would be useless and for a very simple reason, since America at the WTO level has a blocking power which is also expressed in the Court of Appeal. So it is useless to argue in the context of the WTO. I believe that the path of negotiation is more fruitful which, as I said earlier, could lead to an enlargement of the incentives envisaged by the IRA to Europe. So the European production of electric cars or batteries will not be penalized. The problem is, that's not entirely the case.
What do you mean?
In the sense that the Europeans have asked for a change to the legislation, i.e. to US standards, while the Biden Administration is not at all willing to change the IRA and is oriented towards proceeding through an executive order. While this formal passage will still serve to appease spirits for the moment, it must be borne in mind that, unlike a legislative change, an executive order can be revoked or replaced by another president with a new executive order. This creates a certain conditionality, in the sense that as long as you converge with me everything is fine, if you start to diverge I know how to hit you. But there is a much more important underlying issue without knowing which we are unable to understand this debate.
Can you illustrate it to us?
There is an incompleteness in the consolidation of the bloc of US-led democracies. Which derives from the fact that the fundamental point is missing from the process of political unification that has been seen for example against Russia and in part against China, namely giving this political alliance a solid economic basis.
The usual free trade area issue?
That's right. The United States, faced with the European request to negotiate a free trade treaty, is reluctant. This is because the American electorate right now and on the left have a protectionist bias. Thus, America has difficulty consolidating its alliances both in Europe and in the Indo-Pacific from an economic point of view. The Americans do not want to give privileged access to the US market. Even the current American leadership, despite its good intentions, doesn't feel like encouraging this access right now, above all because it is afraid of paying the price in the elections. This has implications in terms of macro-strategy which I will illustrate if you wish.
You're welcome.
What happens in terms of macro-strategy? It happens that a process is underway towards China guided by the desire to bring the production of critical materials back home. This can be done by activating a national reshoring process or with an alternative process called friendshoring, i.e. I don't bring certain productions back to my home but I place them within a perimeter of allies from whom I am sure I will have no problems with either price or of scarcity. However, this would imply the creation of an integrated market of democracies and allied nations even if they are not democracies: a process which is having difficulty getting underway precisely because of the American difficulty in giving economic concessions. So on the one hand we have the Europeans who observe with concern the attempt by the USA to once again become a manufacturing power even to the detriment of the Europeans themselves and on the other we have the Japanese who have the same feeling and are behaving just like the Europeans.
But in the end, what do Europeans have to do in your opinion?
Europeans at the moment are moving in random order. For example, Germany has said it is willing to buy a lot of weapons from the Americans in exchange for maintaining trade relations with China without which the country would be ko I would however like to point out that Manfred Weber, group leader of the EPP in the European Parliament has asked for the opening of EU-US negotiations to arrive at a free trade treaty in the wake of what had been attempted by the Obama administration with the TTIP. But American politics is deaf for the reasons I mentioned earlier, namely because it responds to an electorate that is oriented towards protectionism on the one hand and towards the reconstruction of US manufacturing power that had been delocalized around the world on the other.
And how should Italy move in this context? I recall that Giorgetti said he was in favor of a European IRA.
Italy certainly won't put its relationship with the United States at risk even an inch because the only one that can provide political capital to this government is America and certainly not France or Germany. But even Italy has the problem of obtaining privileges from the USA in practical terms, in the sense that I can also act as an Atlantic wedge with respect to the EU, but what can you give me in return? In my opinion, Giorgetti and the Italian government are not right to release statements aligned with those of the European partners. Among other things, a bilateral agreement between Italy and the US is being prepared to see what can be done to have a privileged relationship, something Macron attempted to do with his recent state visit to America, without however achieving much.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/vi-spiego-fini-e-rischi-del-protezionismo-di-biden-con-lira-parla-il-prof-pelanda/ on Thu, 08 Dec 2022 07:35:29 +0000.