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Biden’s Billions In Green Subsidies Is Sparking A US-Europe Trade Fiasco

Biden’s Billions In Green Subsidies Is Sparking A US-Europe Trade Fiasco

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Joe Biden’s administration hopes to unleash a green revolution by offering hundreds of billions of dollars in subsidies to clean energy companies, but the US president’s flagship legislation also threatens to spark a fresh trade war.

The Biden administration is trying to start a green revolution by providing billions in subsidies to clean energy companies, though it may result in a new trade war. [emphasis, links added]

The Inflation Reduction Act, which was passed by US Congress last summer, earmarks around $369bn in grants, loans, and tax credits for the rollout of renewable energy and clean technologies across the US.

Since the law passed, $90bn of investment has been committed to clean energy projects in the country, ranging from solar panel factories to electric vehicle plants to battery hubs.

And across many sectors, companies are rewarded for building equipment nationally, or sourcing components and critical minerals from the US or with countries that the US has a free-trade agreement.

As a result, the law has alarmed US trading partners, including Europe and Japan, who fear they will lose out to the US on new jobs and business investment. French President Emmanuel Macron said recently that the new climate law threatened to “fragment the West”.

European Union officials have also accused Washington of discriminating against European companies and breaking global trade rules overseen by the World Trade Organization — particularly in the electric vehicle sector, where companies score the full tax credit if they manufacture cars in North America.

David Kleimann, a trade expert and visiting fellow at Bruegel, the European think-tank, says that while the IRA is a welcome piece of climate legislation, it also includes “trade-distortive subsidies” including provisions to manufacture in the US, which are prohibited under World Trade Organization rules.

In response, the EU is working on its own raft of green subsidies, beginning with proposals to loosen up the bloc’s strict state aid rules.

However, corresponding subsidies on either side of the Atlantic have prompted concerns that companies will “subsidy shop” — playing governments against each other and locating their businesses in the most lucrative domain.

Read rest at FT

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