It is better for the European Union to be investment smart than subsidy strong in its response to the protectionist subsidy policy of the United States.
In the 21th century, a war is being waged over the integrity of a nation, the world is drifting apart between democracy and autocracy, China and Russia are contesting the international rule of law, global warming and biodiversity loss are tormenting our planet, an economic and military jungle is looming in space, technology and artificial intelligence are tugging at the boundaries of people and society.
So what should Europe and the United States – the two democratic superpowers of our time – do?
I don’t have a simple answer. However, I do know what Europe and the United States should not do: fight each other with nationalism. That is a real risk, as Europe is swept up by a wave of panic over the impact of the US Inflation Reduction Act, whereby it is luring sustainable industry investment towards America with $369 billion. EU leaders have been discussing on what the best answer is, at the request of big industry and a number of larger member states keen on state planning, France most of all.
A justified concern, but the wrong solution
I share the concern. A big market, big government support, lots of space, low costs: it’s a tempting combination. However, this is not a new thing. Until recently, those were China’s assets. Now those are America’s assets, as the United States also enjoy a cost of energy that is a fraction of the one in Europe.
Until recently, we considered investment by Western companies into China as a global win-win-win: good for Chinese jobs and incomes, good for Western consumers of products made in China, and ultimately good for Western companies and their employees who can sell to Chinese consumers.
That was called globalisation, and it was accompanied with a historic period of general progress and prosperity growth, also over here. Competition was not always nice, not always fair, but it was not a zero sum game: we could specialise, innovate and continue to grow, despite the downside of deindustrialisation. That America is putting billions on the table for green technology made in America does not need to be a zero sum game either. These billions do still not fully satisfy the annual investment needs for the energy transition. Companies that benefit from US subsidies can also still invest in Europe, perhaps even thanks in part to their American success.
While stating all of this, I do not mean that we should simply undergo American economic nationalism. My fear is that America will use unfair competition to acquire the foundations of a new industry and the value chains of the future. However, if that happens, it will not be purely because of a few billions of government support for one or the other gigafactory. If it does, it will be because the profound economic potential of the United States and the overall climate for research, development, investment and production which is structurally more attractive there than in Europe.
Conclusion
Europe should not immediately engage in subsidy imitation. Our first priority should be unity with America, because we need each other globally. If we have to compete with each other, then creativity should be preferred over money, and competitiveness over subsidies. And if nothing else, we should, like America, focus our finances onto concrete investment. For that, we have platforms of projects of common European interest. This allows us to focus tax resources on transnational investment projects, which are a much better idea than a pan-European subsidy policy that would unleash within Europe the same kind of subsidy glut that we are complaining about to the Americans. This would also ensure fair competition for Belgium, my own country. In sum, Europe should not be subsidy strong but investment smart.
Op-ed republished from Brusselsreport.eu