Under the conditions that they have formed after three years of the coronavirus pandemic and a year of war in Ukraine, they change the balanceraising the cost of living for citizens around the world, but also manufacturing for businesses.

In the context curbing inflationBiden’s new law projects extremely favorably, promising subsidies and tax breaks for multinational corporations and large groups that will move some of their production to the US.

American protectionism provoked a reaction in Europe, causing a race for obscene government benefits looms “in businesses that are already doing well,” as one analyst put it, about who gets the lion’s share of future investment.

Last Friday, US President Joe Biden and European Commission President Ursula von der Leyen agreed to a deal that would make it easier for Europeans to comply with the US Inflation Control Act’s subsidy requirements.

Big bait “IRA”

As noted in his article Politico“The first problem is that US President Joe Biden used a huge package of government subsidies under the Inflation Reduction Act. (Inflation Reduction Act – IRA) to encourage major European industry players such as VW and battery supplier Northvolt to consider moving to the US. The second problem is how the European Union has responded to the first (problem).”

“These demands keep coming. Sometimes we wonder: Are these concerns legitimate or are the companies just taking advantage of the situation? to see how far they can go,” a European diplomat said in the same environment.

Amid fears that European industry is on the brink of existential decline and opposition to Biden’s reforms, Brussels is pushing back, predicting an increase in state aid to national economies.

With China already dominating green technology supply chains, “this is becoming a global subsidy race – every lobbyist’s dream,” comments Politico.

If the Brussels plan fails, not only is the future of sustainable European industrial production at stake, but fundamental principles of a free market economy upon which the European Union was built. The risk for European member states is the possibility that their efforts will not succeed, that companies will be transferred outside the EU, or that they will falter financially, with the result that the “marble” will again be paid by European taxpayers.

Requirements and threats

Next week, the competitiveness of the European economy will be lifted by the leaders of the member states at the summit in Brussels, led by capacity building for industries of the futuresuch as electric vehicles, batteries and renewable energy generators such as solar panels and wind turbines.

This is an ideal time for companies to increase their demands for European business-friendly legislation, as well as for more government subsidies.

Multinational companies are threatening to move their production – from cars to batteries – outside the EU, or at least postpone the final investment decisions that it will cost European jobs, taxes and global economic weight.

Already, Tesla recently announced a change of strategy and relocation of some of its operations to the US to take advantage of subsidies provided by the Inflation Control Act, while Intel, the world’s largest semiconductor chipmaker, is threatening to do the same.

It is noted that when Tesla CEO Elon Musk was looking for a suitable place to build a “gigafactory” in the late 2010s, Germany, the Netherlands and Belgium laid out a “red carpet” for him. him, promising generous subsidies if he chooses their land for a huge investment.

“We will check the possibilities,” says Nicholas Wahlberg, vice president of the Volvo Group, referring to the new US tax relief package. “But Europe is also very important to us. We must see Europe trying to get a head start in the green transition at the global level,” he says.

Behind the scenes, auto industry lobbyists point out that subsidies are part of the game. “One might wonder about the managerial skills of multinational corporations if they didn’t use subsidies as a bargaining chip,” says Holger Gerg of the Institute for World Economics in Kiel.

And then, not only European and American multinational corporations require government subsidies to finance their business ambitions. OUR Chinadominating the battery market, is also one of the global players in the same batch.

“Every person I know in the automotive industry has approached a Chinese company. They are important sales jobs. They want you, as a European, to negotiate with governments and get a good deal for a factory or something like that, ”says a lobbyist in the automotive market.

Warning in Europe

For its part, the European Union believes it is already responding to the demands of business with a series of major policy changes, “moving away from the liberal economic approach of the past decade,” Politico notes.

Yesterday, Thursday, the European Commission presented draft regulation for a “zero-emission industry” of greenhouse gases (Net-Zero Industry Act) is a plan to increase Europe’s competitiveness in the production of clean technologies.

Brussels unveiled a plan last week further relaxation of the anti-crisis state aid rule – including new rules for subsidizing a number of strategic technologies. The proposal allows EU countries to provide the same level of support to companies that can go abroad, under an “aid matching” clause that will help Europe compete with the US.

“It looks like the Deinflation Act is doing exactly what everyone feared and criticized: Subsidy Race Beginsexplains David Kleiman, a trading expert at the Bruegel think tank. “Now the big multinationals can play the European Union card against the American proposal.”

Clayman calls it “psychological game” in order to increase the amount subsidies. He cites the case of German Volkswagen, which threatened to wait for Europe’s response to the IRA’s American lure before deciding where to build a new battery plant.

“The terms of the IRA are so attractive that Europe risks losing the race for investment billion, which will be addressed in the coming months and years,” Thomas Small, head of the Volkswagen battery division, said in his memorandum, among other things. A few days later, he announced a multi-billion dollar investment by a German company in Canada, where manufacturing is eligible for IRA subsidies.

objections

In the midst of growing claims and threats, European countries did not stop protesting, warning the Commission that loosening control over subsidies would jeopardize the balance of the domestic market.

“This is a misallocation of public resources that will hurt employment and consumers in smaller member states,” said Conservative and Reform (ECR) MEP Girt Bourgeois, warning that easing grant caps would spark a new race. EU

The recently pro-business European People’s Party (EPP) has sought to block or change a number of EU environmental rules over concerns that they undermine competitiveness.

As Gerg of the Institute for World Economics in Kiel warns, granting subsidies will not change long-term investment decisions.

“Businesses that are still thinking about moving to the US will obviously be happy to receive a grant provided there,” he notes, adding that the investment decision It’s not just about subsidiesbut also other factors such as the size and potential of the market, the location of suppliers or the economic and political stability of the region.