Race of subsidies instead of tariff competition – Economics – Kommersant

An adviser to the president of the Center for Strategic Research discusses why the American law to reduce inflation provokes a global struggle for companies and investments and will cause a global “subsidy race” to maintain economic activity in the Kommersant column. Evgeny Tonevitsky.

Recently, European Union (EU) authorities accused the United States of violating global trade agreements. It took the Europeans almost three months to form an attitude towards the “Inflation Reduction Act” signed by the US President in August. The EU was not ready to “understand and forgive” its main ally: the law, which was supposed to synchronize the efforts of the United States and partners to create a green economy, make the tax system in the United States more fair, and medicine affordable, at the same time leads to a global “race to the bottom” on key technologies and resources for the green transition.

The document will allow directing an unprecedented $369 billion to date for climate programs and the transition to green energy.

However, the compromises that the US administration had to make to get it through the Senate 50-50 have created so many local tensions around the world that it calls into question the possibility of an overall win.

For example, the law provides for the introduction of an additional 15% tax on large (income over $1 billion per year) corporations. It can be expected that in the near future they will begin to pass these costs on to their employees and/or consumers. Depending on the mechanisms that companies will use, this increase will affect certain groups of Americans to varying degrees, but you can be sure that in no case will this lead to a reduction in their costs.

As a result, although the law is called “On reducing inflation”, even the most positive-minded experts do not expect it to actually decrease.

What can be expected is a decrease in the US national debt of about $100 billion a year. It would seem a significant amount, almost a quarter of the Russian federal budget, but only 4% of the annual US budget deficit, or 0.3% of their public debt. How the American voter will react to this, how additional spending will affect the attitude towards an accelerated transition to a green economy, we will be able to see already in the next presidential election in 2024.

The simultaneous allocation of many subsidies for American manufacturers working in the field of electric vehicles, green hydrogen, modern energy storage and many others causes sharp and justified bewilderment on the other side of the Atlantic, and on the other side of the Pacific Ocean, and among the nearest neighbors. At first glance, such subsidies are contrary to the letter and spirit of the World Trade Organization (WTO), creating excessive preferences for American manufacturers at a time when European industry and the economy as a whole are already experiencing a serious burden caused by high energy prices. However, disputes on the WTO platform can be resolved for years, regardless of the urgency of the issue and the possible scale of the consequences. In recent weeks, the EU has been trying to use all alternative platforms to discuss the issue – from the transatlantic Trade and Technology Council to the UN Climate Conference – but the lack of established mechanisms, clear proposals, and, in general, some confusion among European officials who did not expect this from their closest allies, does not allow expect a speedy resolution of the situation by political means.

Economic activity is now multidirectional. On the one hand, the large Spanish energy company Iberdrola has already said that thanks to the new law, the share of their investments in the United States will increase to 34% in the next three years, while in Spain as a whole it is 17%, and Germany, Italy and France together – 12%. %. On the other hand, it seems obvious that, for example, Volkswagen cannot leave Germany, just like Renault from France or Huyndai from South Korea.

As a result, the only quick fix now available to authorities outside the US is to introduce symmetric subsidies for their producers, thus setting off a subsidy race.

And it is already beginning: Canada was the first to introduce subsidies to protect against the flow of companies and investments into the United States in early November.

If politicians fail to stop this downward spiral soon, the Boeing-Airbus confrontation will be remembered as the golden age of transatlantic competition.

The results of the “subsidy race” will become noticeable in a couple of years – for now, for young companies that are ready to enter highly competitive markets and plan to develop for many years ahead in a green future, a unique window of opportunity opens up for a strong start with the most diverse and virtually comprehensive support from the governments of all major economies of the world, forced to join today in the “internecine” global battle for intelligence.