What will be (perhaps) the EU’s response to Biden’s Wrath
In response to Biden's subsidies, Von der Leyen anticipates a change in state aid rules and a "common financing" for a European industrial policy. Minister Urso is half convinced and is pushing for greater EU-US alignment. All the details
On Sunday 4 December, the president of the European Commission, Ursula von der Leyen, said that the European Union must modify its state aid rules to respond to the subsidies contained in the Inflation Reduction Act, the 369 billion euro anti-inflation law dollars signed by President Joe Biden in August.
THE INFLATION REDUCTION ACT, IN SHORT
The Inflation Reduction Act allocates substantial incentives to US manufacturing in some strategic sectors for the ecological and digital transitions, and is therefore perceived by Brussels as a danger to the competitiveness of its companies and as a risk of deindustrialization in the Old Continent.
VON DER LEYEN'S PLAN
“The Inflation Reduction Act”, said von der Leyen, “should make us reflect on how to improve our state aid rules and how to adapt them to a new global context. The new assertive industrial policy of our competitors requires a structural response”.
The president of the Commission has also proposed "new and further funding at European level" to companies that deal with critical technologies, such as those for zero-emission energy. “A common European industrial policy requires common European funding,” he explained. “The goal of our European industrial policy is for European industry to be a leader in the clean transition. In the medium term, this means strengthening the resources available at European level for research, innovation and strategic projects”.
In concrete terms, von der Leyen would like to proceed with an expansion of the RePowerEU, the plan dedicated to accelerating energy detachment from Russia and the transition to clean sources, and with a subsidy program called the European Sovereignty Fund (he mentioned it during his last State of the Union Address).
GERMANY IS SKEPTICAL
However, his approach is not too welcome to some member states of the Union and in particular to Germany , cautious on community subsidies and on the issue of new European funds: he would rather use those already contained in the NextGeneration EU, better known as Recovery Fund.
THE THOUGHT OF MINISTER URSO
Interviewed this morning on Omnibus , on LA7, the Minister of Enterprise and Made in Italy Adolfo Urso spoke of the need for a "European industrial policy" to respond to both China and the United States.
However, according to Urso, a revision of the rules on state aid represents "a path that could aggravate the European question, because there are countries like Germany that have important and significant resources for investing, and other countries like Italy […] that they do not have these national resources to invest. As on the energy front, we would find a Germany that subsidizes businesses and therefore creates a competitive advantage” compared to the Italian ones.
Rather than proceeding at the national level, the minister believes that "the response must be European, such as that of the PNRR" or with "a European sovereign fund" (the European Sovereignty Fund, in fact).
UNITE – NOT DIVIDE – THE WEST AGAINST CHINA
Urso wants a "state-strategist" on critical sectors, but thinks that starting a trade war with the United States however "would be wrong because it would divide the West".
What the minister means is that, rather than competing against each other on subsidies, Europe and America should join forces against China.
After all, Beijing is the real target of the Inflation Reduction Act: trying to move the electric car supply chain to the United States and the rest of North America, the law represents an attempt by the Biden administration to discourage the procurement of materials and components from China, Washington's economic and geopolitical rival that currently dominates the supply chain of batteries and base metals.
THE DIVISIONS WITHIN THE EUROPEAN COMMISSION
But the European Commission itself is divided on the way forward vis-à-vis Washington.
Some commissioners, such as Thierry Breton for the internal market, would like the Union to introduce its own aid plan for European industry. While others of a more liberal orientation, such as the Commissioner for Competition Margrethe Vestager, would instead prefer to avoid a race for subsidies that could lead to a trade war with America, made up of reciprocal tariffs.
Von der Leyen thinks that the European Union must respond to the Inflation Reduction Act, "working with the United States to mitigate competitive disadvantages". For example, the law provides tax credits of up to $7,500 for electric vehicles assembled in North America and containing batteries manufactured in the region; not being able to access the bonuses, all the others could end up losing their attractiveness in front of US consumers.
CONVINCE BIDEN
More than a trade war , the Commission would prefer to convince the Biden administration to modify the Inflation Reduction in order to also allow European companies to access American state aid.
A first and "unexpected" victory – as POLITICO , one of the most important American newspapers defined it – was obtained by the French president Emmanuel Macron during his visit to the United States , aimed precisely at obtaining a revision of the anti-inflation law .
Specifically, Macron's goal was to obtain exemptions from Washington for European companies similar to those granted to Canadian and Mexican companies. And Biden, on this point, declared that “there are changes we can make to make it easier for European countries to participate. I never intended to exclude people who collaborate with us. That was not the intention. We're back in business, Europe is back in business. And we will continue to create manufacturing jobs in America, but not at the expense of Europe.
THE DETAILS
The American president specified that he did not have to apologize for a law he considers fundamental for the reinvigoration of American manufacturing, but he also acknowledged that some parts of it need to be fixed. He also recalled that the Inflation Reduction Act provides for measures in favor of countries that have free trade agreements with the United States (such as Mexico and Canada, while there is no similar treaty with the European Union), and added that these could also be extended to American "allies".
WHAT WILL REALLY CHANGE?
However, it is not clear what will actually change for European companies. It is also possible that during the press conference Biden, to convey to the public an image of cordiality and unity among allies, made more concessions than he will actually be able to guarantee: amending the Inflation Reduction Act would require new and complicated negotiations in Congress.
Furthermore, the technical details of those extensions to Europe of the exemptions currently reserved for Canada and Mexico are missing, two countries that are very integrated in the US supply chains, and in particular in the automotive sector.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/von-der-leyen-sussidi-inflation-reduction-act/ on Mon, 05 Dec 2022 12:23:47 +0000.