Everyone calm down: US anti-inflation law The German Economic Institute said on Wednesday that it is not as bad as many are making it out to be.
European politicians are grappling over how to respond to Washington’s $369 billion green subsidy package to keep companies on the continent. But the Act’s effects have been wildly exaggerated by the media and politicians, the Cologne-based institute argues in a new paperAnd starting a retaliatory spending spree can be a mistake.
“Many see it [act] See a continuation of Trump’s protectionism as an attack on Germany as an industrial powerhouse, and with more than a few other tools. However, upon closer inspection, both the criticism and the slander appear to be self-righteous and exaggerated,” the paper reads.
“self-righteous, because the US is now taking climate protection seriously and wants to restructure the industry in entirely legitimate ways, and hyperbolic because there is never just one factor that destroys investment places.”
The paper comes a day after European Commission President Ursula von der Leyen announced A net-zero industry act aimed at boosting Europe’s clean tech industry in response to the US subsidy package.
One of the key players is Germany, which has changed its position in recent weeks from being cautious about subsidies to supporting France’s push for more money for industry.
Yet the German economy may have benefited from the US IRA rather than lost, the analysis found. This is because the act is likely to boost the US economy – and in turn demand for exports from Germany.
a big cake
“Figuratively speaking, the cake gets bigger. If the parts [the subsidies] Due to discriminatory elements not accessible, the German economy would still end up with more than before,” the paper reads.
Author Jürgen Matthes told POLITICO that, while the paper focused on Germany, other EU countries will likely face a similar situation. “It’s the same logic,” he said.
The institute argues that the IRA itself is even less discriminatory than many make it out to be. The institute said so-called local content requirements, which favor domestic products over imported ones for tax breaks and subsidies, are problematic and may violate World Trade Organization rules. But their actual impact on companies in Europe may be smaller.
For example, tax breaks are only given to products under a certain price – and a large proportion of German cars that are exported to the US are more expensive, according to research. This would mean that those cars, with or without local content requirements, would be outside the subsidy scheme anyway.
And relocating supply chains is expensive, so even if companies failed to qualify for subsidies because they imported too many parts from Germany, it wouldn’t mean they’d shift production of those parts to the U.S. the authors said.
For all the hysteria in recent weeks, meanwhile, German companies have kept surprisingly quiet on the law, Matthes said. When laws are made that are detrimental to the interests of companies, they generally express their concerns. “But it’s coming down relatively low on IRAs,” he said. “Companies don’t think there’s a big problem.”
Why then have so many politicians criticized the IRA in recent weeks?
“The discussion seems to us to be something like all those who have always been in favor of more subsidies and more industrial policy now see this as a great opportunity to push it forward at the European level as well,” Matthes said.