In an aerial view, new Tesla vehicles sit in a parking lot at the Tesla factory on October 19, 2022 in Fremont, California. [Photo/Agencies]
When US President Joe Biden signed the Inflation Reduction Act in August, which provides excessive subsidies for electric cars, solar panels and other domestically produced products, he seemed to take a step forward in implementing the his economic policy focused on bringing manufacturing back to the United States. “Made in America”, says the slogan.
But the sweeping legislation has sparked anger and concern even among US allies because it violates basic rules governing international trade. The European Union has listed at least nine points in the act that are against international trade rules, especially the tax credits given for electric vehicles produced in North America, which it says are “discriminatory”. and may violate World Trade Organization rules. The Japanese government also called the tax credits “discriminatory incentives” for US manufacturers.
Thanks to the $369 billion package, Europe has begun to feel the grip of its industries and investments moving to the United States, a trend accelerated by the increase in energy costs on the continent, which are now about five times more expensive than in North America. “I think we need a European wake-up at this point,” French president Emmanuel Macron told executives from domestic industrial companies in a recent speech.
Take Northvolt, a major European battery producer, for example. The Swedish group, which is backed by Volkswagen, BMW and Goldman Sachs, is now looking to expand production in the US mainly because it will receive subsidies amounting to $600 million to $800 million under the Inflation Reduction Act. That compares with 155 million euros ($158.9 million) in incentives on the table from Germany. The IRA “is operating strongly from Europe to the US”, Northvolt Chief Executive Peter Carlsson told the Financial Times.
This prompted Luisa Santos, deputy director-general of BusinessEurope, a pan-European lobby group, to warn that the US legislation is sending a “dangerous signal” that could encourage other jurisdictions to take protectionist measures.
But despite widespread opposition to the law, the US seems determined to take a discriminatory attitude when it comes to economic and trade policies to protect its own interests, especially in sectors where companies from other countries become competitive.
As a member of the WTO, the US should implement relevant industrial and investment policies in accordance with the WTO, in order to maintain a fair trade competition, instead of harming the level playing field that depends on all the trading countries.
