Trademark of the policy pursued by his government Joe Biden V USA – at least for today – it is a bill to reduce emissions Inflationwhich was adopted in August 2022 and, despite the misleading title, is mainly about climate, the American economist argues in his article in the New York Times. Paul Krugman.

As he explains, the goal is to get through it. changing of the climate through industrial policy, providing both businesses and consumers with various subsidies for the use of green technologies, the main example of which is electric vehicles powered by renewable energy sources.

A “war of subsidies” with the EU is possible.

For now, Krugman said, it appears that U.S. businesses have been quick to take advantage of these subsidies, with the result that the bill’s cost to the budget is likely to be hundreds of billions of dollars higher than expected.

At the same time, the protectionist aspects of this legislation, which strongly favors domestic production, caused discomfort in other countries, and the Europeans even started talking about an “industrial Green Deal plan”, the possible adoption of which, in fact, would lead to a war of subsidies with US.

Subsidies instead of carbon taxes

In other words, early evidence suggests that the deflation bill will be a huge success, the economist writes.

The bill, unlike other industrial policies that have been proposed in the past, is not an attempt to boost economic growth by picking…winners and losers. Instead, it is about restructuring the economy to limit the impact of climate change. The main reason for doing this through subsidies rather than through measures such as carbon taxes is political.

A proposal for a tax on gas emissions would have no hope of being approved by a divided Senate. However, legislation that would increase production would be at least a realistic scenario from a political standpoint.

In addition, the bill’s provisions encouraging the purchase of US goods are a key goal and are expected to create a clearer link between green investment and US jobs, although the transition is expected to be costly and strain relations with the country’s trading partners. . But when the main goal is to eliminate an existential threat to the environment, then efficiency is considered a secondary factor.

Main advantage

In this case, however, it seems that the US government could successfully select the “winners” of said green transition. The reason that significant progress can now be made with more carrots than sticks, i.e. subsidies rather than taxes, is due to the fact that green technologies are advancing at a rapid pace. And, according to Krugman, there are clear signs that subsidies for the transition to a green economy will accelerate the development of appropriate technologies.

But, according to the economist, this is just the icing on the cake. The main benefit of this new industrial policy is not in job creation or technological advancement, but in limiting the negative impacts of climate change.

And it’s for this reason, Krugman says, that a subsidy war with Europe would be a good idea, as he explains that it’s desirable that countries other than the US take climate action, even if a measure of protectionism is included in their solution.

Concerns about protectionist scenario

However, Krugman notes that he understands the concerns of some economists. Building a relatively open global trading system over the past three generations (with tariffs even at relatively low levels) has been a huge diplomatic and economic achievement, and for this reason, the economist points out, it is understandable that his colleagues are wary. that economic nationalism would put it all in jeopardy.

However, Krugman believes that in the face of a severe environmental crisis, everything possible must be done to limit its consequences. As he characteristically notes, “We wouldn’t like to say, ‘We destroyed the planet, but at least we followed the rules of the World Trade Organization.'”

^{Source: New York Times.}