velasco133_sUSAN WALSHPOOLAFP via Getty Images_bidenvonderleyen Susan Walsh/Pool/AFP via Getty Images

A Subsidy War Without Winners

The brewing dispute between the United States and the European Union over clean-energy subsidies may set in motion a vicious cycle of protectionist measures. At a time of heightened geopolitical tensions, the world’s leading democracies should strengthen the global rules-based system, not undermine it.

LONDON – After the “currency wars” of the previous decade and the “trade wars” unleashed by former US President Donald Trump, a new kind of conflict is emerging between two of the world’s leading powers. Or at least that was the talk during the World Economic Forum in Davos, where pundits and policymakers fretted over so-called “subsidy wars.”

The first shot was fired with the United States’ passage of the Inflation Reduction Act (IRA), which includes $369 billion in subsidies and tax benefits for American companies using green technologies. In response, European Commission President Ursula von der Leyen promised to loosen the European Union’s rules on state aid, enabling member states to pump cash into green industries. “To keep European industry attractive, there is a need to be competitive with offers and incentives that are currently available outside” the EU, she said, at pains to defend the bloc’s protectionist turn.

To be fair, those concerned about the costs of a European-American subsidy war are mainly academics. Businesspeople dislike subsidies only when they are not receiving them. “It is a game-changer,” I heard a tycoon say about the IRA. He added that his company recently decided to launch four mammoth green investments in the US and would consider doing the same across the Atlantic if the EU put enough money on the table.

https://prosyn.org/HCL1tUZ