The war bUkraine is still raging, and the energy crisis that hit bEurope Following her, he entered his first critical winter period. But already now, the long-term consequences of the crisis are beginning to become clear. Against the background of the “end of the era” of cheap Russian gas, which has been announced even if the war ends, and in the face of American legislation designed to subsidize various industries, Europe is waking up in recent weeks to discover that industrial giants are considering moving overseas. For the first time since the outbreak of the war, fissures are appearing in the united front that was registered until now between U.S to Europe, and European leaders criticize the president’s economic policies Joe Biden and define it as “unfair”.
The American subsidy monster
Europe has been a major rival of the US in the field of world trade in recent decades, and former US President Donald Trump even defined the European Union as “America’s greatest enemy… because of what they are doing to us in the field of trade.” But the war in Ukraine, which began in February, changed the picture. The huge German trade surplus that has been the focus of American criticism for years turned into a deficit by last month, with Germans forced to spend much more on energy purchases and exporting less because of the global slowdown. The huge cost of the European transition these days from Russian gas in pipelines to liquefied natural gas (LNG) from the US, Qatar and Algeria threatens to erode the competitive advantage of production on the continent.
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Added to this is the “Inflation Reduction Act” (IRA) which the Democratic administration in the US managed to pass in August after much opposition. This is a “subsidy monster” worth more than 400 billion dollars for areas such as green energy, electric vehicles, battery production and the construction of factories, which is expanding Also for health and tax issues.
The combination of these two factors is one of the reasons why several European industrial giants have already announced that they are considering opening factories in the US and reducing European operations. Northvolt, a Swedish company that produces batteries for electric vehicles owned by Volkswagen, BMW and Goldman Sachs, announced in recent days Because it is considering expanding its production to the US. She told the Financial Times that under the new American law, she will receive funding of about 600 to 800 million dollars for the plant, due to the government subsidies for electric vehicles and the battery industry. “The IRA is creating momentum for a move from Europe to the US,” the company’s CEO told the newspaper. Even Germany’s Volkswagen has announced that it is considering building a new electric vehicle plant in Tennessee.
Europe is worried: “We need to wake up”
This momentum worries European leaders, who see how future investment and current activity is shifting from Europe to the US. “I think we need to wake up in Europe in this regard,” French President Emmanuel Macron told French industrialists. In France, some “energy-guzzling” industries such as glass and ceramics production are already They were shut down due to the high energy prices. Although the price of gas in Europe has fallen sharply from the peak recorded in August, it is still several times higher than the average price on the market in recent years. The price of energy in the contracts for next year and the year after is also not close to the low price that prevailed in the last decade. German Economy Minister Robert Habakkuk joined to the new conflict, and told the country’s media that American support is “excessive” and that the IRA law “draws all investments from Europe”.
In fact, the European resurgence now threatens to reignite the trade war between the US and Europe, which peaked during Trump’s tenure. Since many tariffs have been lifted, threats have been taken off the table, but competition between the world’s two largest economic regions still exists beneath the surface – and in recent weeks also above him.
The battle over Biden’s legislation
The European Commission is demanding that the US change its IRA legislation “to conform to the competition norms of the World Trade Organization”. It also resents the fact that in the field of electric vehicles, the US legislation grants a subsidy of $7,500 only to cars whose “majority of components” have been manufactured in the USA. The Americans, for their part, say that the ball is in the European court, and that if the Union wants to encourage a future industry of electric vehicles, it must increase the subsidies it offers in the field. The Union claims that this would create a “race to the bottom” of subsidies, and that this is precisely the legislation that the World Trade Organization (WTO) trade regulations are designed to prevent. In Germany in particular, they feel that the US has “abused” the relative openness it has shown in the vehicle market, after a new factory of the American “Tesla” was established near Berlin and has already started selling electric vehicles on the continent.
But this is not only in this area, but an overall threat in the trend of “de-industrialization” (withdrawal of industrialization) that has been hovering over Europe even more strongly since the war in Ukraine. A European oil embargo on Russia is due to come into force this month, putting an end to the two million barrels of Russian crude oil that the EU previously purchased. The supply of Russian gas to Germany via “Nord-Stream” has completely stopped and it is doubtful that it will be able to resume after the explosions that occurred there. The big question is how quickly Europe will be able to demonstrate energy security again, and if its industry will not “vote with its feet” and move to other regions, including the US and Asia.
Meanwhile, the list of companies considering investing in the US is getting longer. Among them is the Spanish energy company Iberdrola, which is targeting the future hydrogen market and American subsidies in this area; the French engine manufacturer Safran, which announced that it is “reconsidering” investing in the US, after suspending a decision to build a plant in France because of production costs. The CEO of the company explained that the price of energy spiked in France, while it remained stable in Malaysia and the USA.
European steelmaker ArcelorMittal announced that it will reduce production at plants in Germany and increase production in Texas, USA. Dutch chemical manufacturer OCI also announced that it will expand its ammonia plant in Texas due to the cost advantages of manufacturing there. Even the Danish jewelry company “Pandora” announced that it will move the The production for the USA.
Germany is trying to provide a counter-reaction
Germany, the largest economy in Europe and until recently one of the largest exporters in the world, is trying to respond to the changes and calm industry concerns by comprehensively subsidizing energy for businesses and households, but it is not clear how much the initiative will cost and it has not yet been finally announced. The government intends to set a ceiling price of 14 cents per kWh of gas for industry (close to three times the price so far) which will be limited to about 70% of consumption in previous years. This may allow activity to continue, at an estimated cost of about 200 billion euros over a year and a half, but It is doubtful whether it will encourage investments in energy-intensive fields.