A few months after its vote by the American Congress, the Inflation Reduction Act is arousing fears and political reactions on the European side, to the point of having been a central issue during Emmanuel Macron’s visit to the White House in November. If the reactions are so virulent, it is not on the substance of the plan, but on its form, which confronts European leaders with some of their contradictions and their limits.
Basically, the Inflation Reduction Act, in its climate component, finally puts the United States back in line with the agenda to fight global warming, which we can only welcome. In form, however, some subsidies clearly have a protectionist dimension and favor North American industry to the detriment of foreign producers. Such a break with the rules of the World Trade Organization, even if it is not new on the side of the United States, legitimately arouses reactions from their European partners, but also Japanese or Korean, and raises fears of the engagement of a race for subsidies and protectionist measures.
Rebalancing international trade
Beyond possible exemptions that could be negotiated, this conflict above all highlights certain ambiguities in the European position on free trade and the defense of its industry. If the Europeans respect the letter of the rules of international trade, they are indeed not necessarily good students. We are thus emerging from a decade of massive trade surpluses in the European Union, with the United States experiencing a structural trade deficit.
By producing more goods than they consume, Europeans thus export their demand deficit to the rest of the world, and contribute (alongside other countries including China) to the deindustrialisation of the American economy. These imbalances, which nothing justifies over such a long period for a large rich region, weaken the international trading system built up since the Second World War and the European position today. And the fact that the surpluses are concentrated in certain countries, Germany, the Netherlands and central European countries in the lead, only reinforces the divergences of interests between Europeans.
Promote the emergence of tomorrow’s technologies
Make no mistake, the European situation is not that of France: across the continent, industry has held up well in recent decades. The industrial questions that must be asked are those of the distribution of activity between European countries and the means of encouraging the emergence of the industries that we will need tomorrow, in particular within the framework of the ecological transition. And not to increase the share of industry in European GDP, beyond the temporary support in times of energy crisis.
From this point of view, responding to the Inflation Reduction Act with a Buy European Act which would mobilize public procurement for the benefit of European companies in an indiscriminate manner seems surprising to say the least. And all the more so since the United States, which has long had its Buy American Act, is today one of the most deindustrialized rich countries with France.
If there is an example to be taken from the United States, it is in their ability to bring out cutting-edge technologies, which have notably enabled the appearance of digital giants. And this is indeed the ambition of the Inflation Reduction Act, by assuming an industrial policy that subsidizes certain green sectors and technologies, financed to a large extent by a tax on large companies and the fight against tax evasion.
Reconciling conflicting objectives
More broadly, this episode shows us the contradictions in political objectives: how to reconcile an ambitious policy to fight against global warming while maintaining an open trading system? If solutions negotiated between partner countries appear ideal, what can be done when the acceptance of such environmental policies requires protectionist measures favorable to the local industrial fabric?
For their part, the Europeans are also planning a carbon border adjustment mechanism, which will introduce trade barriers to preserve the competitiveness of sectors subject to carbon pricing. These questions of reconciling different, sometimes contradictory objectives for a government and of making the different economic policies consistent between countries do not suffer from a simple answer.
They will arise all the more glaringly, in the years to come, as the ecological transition will lead to industrial disruptions and as the management of their consequences will be crucial for the national industrial fabrics, their companies and their employees. The switch to the electric car, at the heart of the Inflation Reduction Act aid, is a perfect illustration of this: in this sector, the challenge for Europeans comes first from imports of electric vehicles from China, largely produced by Western builders.