When Joe Biden’s Inflation Reduction Act was passed by the US Congress last summer, it seemed like a good idea. The act included billions of dollars in subsidies for buying electric cars and other eco-friendly products. These subsidies were meant to help grow America’s green economy and global fight climate change.
But the fact that these subsidies will only be available to people who buy products made in the United States has upset many European countries. They see it as a thinly veiled attempt to get a piece of Europe’s and Britain’s high-tech manufacturing sector by getting European companies to move factories to the US.
Welcome to the global race to be the leader in green technology, where the future of the planet and the global economy are tied together in a geopolitical game that could be dangerous.
The US and the EU are at odds with each other, but some East Asian countries are also showing their displeasure. Some British business people are wondering where the UK stands in this growing global fight.
Most countries give money to green technology, but Joe Biden’s plan to give money only to cars made in North America scared many allies. People who buy cars made in the United States can now get a tax credit worth up to $7,500 (£6,000).
Buy from Europe?
When he talked about the Inflation Reduction Act, Joe Biden read off a list of companies that had invested in making cars in the US. Many of those companies were from Europe. But it will affect more than just cars.
The CEO of a Norwegian fertiliser company, Svein Tore Holsether, told me, “The US is setting up a system that rewards sequestering carbon and switching to green production at a level that really encourages and drives investment.”
“Right now, many companies in Europe are asking questions. Where are the reasons to change? Businesses are going out of business. People are putting money into the US in new ways.”
At the same time, Bruno Le Maire, France’s finance minister, told me, “We shouldn’t underestimate the effect of the Inflation Reduction Act… Macron, the president of France, has been very clear… First of all, we want the US government to give us some room to move. Since we are friends and allies, we want to get some special treatment.”
Mr. Le Maire said that he and his German counterpart would soon go to Washington to talk about these worries. In fact, German Chancellor Olaf Scholz has already talked about the Inflation Reduction Act face-to-face with some of the most important US senators and members of Congress.
Mr. Le Maire wouldn’t rule out the idea that, in response, Europe could start its own “Buy European” subsidies for green tech.
“Everyone knows that at some point, there will be a need to invest more and have a kind of European buyback in strategic areas like the green industry.”
Leo Varadkar, the leader of Ireland, which has been the US’s closest ally in Europe for a long time, was more direct. He said the Inflation Reduction Act made his country “not happy.”
“The European Union will have to do something, and almost certainly that will mean giving state aid and subsidies to European businesses. “The problem with that is that you end up in a subsidy war, or a competition for subsidies,” he said.
What is clear is that the EU is about to respond to the big American plan, even though some members are worried that doing so could start a trade war. And the White House knows about the problems because they have set up a US-EU task force to look into them.
How is the UK doing global fight?
Less clear is where the UK stands in all of this.
The BBC knows that both the Business and Trade Secretaries have talked to their US counterparts about their concerns, but it’s not clear what their exact demands are. Grant Shapps, who is in charge of business in the UK, says that the country doesn’t need a package of green incentives like the US does because the UK is already “ahead of the game.”
The US Inflation Reduction Act is all about investing in renewable energy, which is what we’ve done. We’ve done it a decade ago,” he told me.
“That’s why we don’t just have the world’s biggest offshore wind farm; we also have the second, third, and fourth biggest, and one that’s even bigger is on the way.”
He is also sure that the UK won’t be left out of what may end up being a split between the EU and the US over this issue.
He also said that he had talked to John Kerry, the Climate Envoy in the Biden ministry. Mr. Shapps says that much of what the US is doing is good. “This new bill needs to be trimmed around the parts that could really affect us, like the protectionist parts.”
How do people in the US feel?
Leaders who have talked to their US counterparts about the Inflation Reduction Act say that it was all a mistake and that the US “forgot” about Europe when they wrote this law, which they call an act of “half aggression” on the economy.
People have said that this was all meant for China and not for Europe. But there is no doubt that big European manufacturers are having their minds changed. Even though the need for net zero does lead to more manufacturing in Europe and North America, one European leader says that there is a red line that shouldn’t be crossed.
People told me that things could get complicated if European export production, investments, and jobs start to move across the Atlantic.
There is also worry that “green technologies” won’t be enough to fix this. Because the pandemic caused bottlenecks in the supply chain, countries are thinking twice about how much they depend on East Asia, and not just China, to make their goods.
In both the EU and the US, new places are being built to make microchips, and large tech companies in the west are getting a lot of money to do this. Europe calls this “strategic autonomy”, the Americans call it “friend shoring” or the restoring of supply chains to friendly nations.
It means that huge amounts of investment will be moved away from where they are now, at a time when many industries are going through huge transformations. This process could change the way the world makes things for the next 100 years.
Some people in the British business world worry that the EU and the US will global fight over not just electric cars, but also microchips and other important technologies. And it’s clear that the “globe” that “global Britain” wanted to be a part of after Brexit has changed a lot, which raises some very important strategic questions about Britain’s future.