The United States has launched a major industrial policy push to attract factories producing solar panels, semiconductors, and electric vehicles. The government is offering tax breaks, grants, and other incentives to jump-start the domestic market for these crucial products. This initiative has prompted governments around the world, from Europe to East Asia, to propose their own investment plans, leading to what some are calling a global subsidy race.
European officials have accused the United States of protectionism and have been complaining to the Biden administration about its policies. Governments in the European Union and elsewhere are now considering how to counteract American incentives by offering their own incentives to attract investment and prevent companies from relocating to the United States.
The United States argues that these investments will enhance its ability to address climate change and reduce its dependence on potentially risky supply chains in China. However, concerns have been raised about diverting government resources from other priorities and increasing debt loads, especially when borrowing becomes riskier and more expensive due to high interest rates.
The spending competition has strained alliances as companies producing batteries, hydrogen, and semiconductors can now choose the most welcoming country for their technologies. For example, Freyr Battery, a European company developing lithium-ion batteries, shifted production from Norway to Georgia in response to the US Inflation Reduction Act. Some countries, like Canada, are benefiting directly from US spending, while others are struggling to match the scale of American fiscal firepower.
The United States has tried to address allies’ concerns by signing new trade agreements that allow foreign partners to share in the benefits of its clean energy law. However, disagreements persist, particularly between the United States and Europe, over issues such as labor inspections at mines and facilities producing minerals outside their territories.
The Biden administration maintains that its approach does not indicate protectionism and that climate spending is necessary. While the investments are substantial, the United States is likely to fall short of international goals for curbing global warming.
Other countries, including the European Union, Japan, South Korea, and China, have proposed their own plans to subsidize green industries and protect their market share. This competition has raised concerns in smaller economies like Britain, which may struggle to keep up due to fiscal constraints.
Some experts believe fears of a subsidy race are exaggerated and that the overall spending by the United States and the European Union is not significantly different. However, frustrations in the European Union may stem from broader economic concerns and increased competition from the United States and China.