Will the EU support billions of its own companies like the US?
‘If you buy Dutch products, we help each other!’ With this slogan, the Dutch Manufacturers Association wanted to encourage consumers to buy products from their own soil in the 1930s. Due to the economic crisis, England and Germany banned Dutch products in order to protect their own products.
Almost a century later, such a call would be unthinkable in Western economies based on free trade. But US President Joe Biden does. Not with a slogan, but with a big dollar bag. The Inflationary Reduction Act (IRA) is the – misleading – name of a massive stimulus program to green the US economy and create jobs (see ‘What the IRA does’). Note: This aid goes mainly to companies manufacturing on US soil.
What does an IRA do?
- As of January 1, 2023, USD 369 billion (EUR 351 billion) will be available for investments in security and climate, and USD 64 billion (EUR 61 billion) for more accessible care, such as affordable medicines.
- Companies with annual profits of more than $1 billion and better tax collection will, among others, pay a minimum tax (15 percent).
- Green initiatives are fueled by 270 billion dollars (257 billion euros). Almost half goes to investments in renewable energy and storage.
- $30 billion (€29 billion) will go to nuclear power and $60 billion (€57 billion) will be used through tax cuts to spur private investment in electric cars and energy-efficient homes.
- Only electric cars (and other green products) produced in the US receive a tax break or subsidy.
Therefore, tax incentives for electric cars only apply to Teslas and other American brands, not to cars manufactured in Europe or China. The EU says that is unfair. There, a Tesla gets as much tax relief as an electric BMW.
EU accuses US of protectionism
Europeans, especially Germany and France, fear that America will lure companies to their country with subsidies and much cheaper energy. Tesla has already suspended plans to make battery cells in Germany because the American carmaker is after tax breaks in its home country.
There are major concerns about the IRA in the Dutch business community, especially in combination with high energy prices. Those involved talk about ‘crazy subsidies’ to companies if they choose sustainable companies in the US.
The EU accuses the US of protectionism and violations of World Trade Organization (WTO) rules. But initiating a procedure at the WTO is considered pointless because a ruling can take years.
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