US subsidy package: “job killer” or wake-up call? | tagesschau.de


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Status: 07.12.2022 11:52 a.m

US President Biden wants to strengthen the domestic economy with enormous subsidies. The EU fears disadvantages. The German economy also sees opportunities – if Europe reacts correctly. But how?

By Bianca von der Au, tagesschau.de

The United States is one of the largest buyers of goods “made in Germany”. But products from German manufacturers have long since ceased to be produced only in Germany. Many large DAX companies have their own production sites in the USA – including the major car manufacturers BMW, Mercedes and VW, the chemical companies BASF and Covestro, Siemens and Bayer. Can they, too, benefit from the “Inflation Reduction Act” – a $100 billion subsidy package from President Joe Biden’s administration?

Yes, to a limited extent, says economic researcher Gabriel Felbermayr from the Austrian Institute for Economic Research. “Anyone who produces in the USA, Canada or Mexico and buys the parts for the cars, machines, etc. there will benefit fully from the subsidies.” But Felbermayr warns that it is not a sure-fire success. “Because you have to prove that there is enough added value from North America in these products.”

What is the Inflation Reduction Act?

The United States’ “Inflation Reduction Act” is a $370 billion aid program that aims, among other things, to strengthen renewable energies and industry in the fight against climate change. It is the United States’ largest subsidy package to date to combat global warming.

To receive funds from the bailout, companies must invest and manufacture in the United States. The EU reacted with alarm: The European Union fears that European companies could also relocate their production overseas to benefit from the subsidies.

A lot of money for climate protection investments

Many large international corporations see the “Inflation Reduction Act” less critically than it is discussed in public. In an interview with the “Handelsblatt”, the boss of the large German electricity producer RWE praised the fact that the law had created very attractive conditions for investments in climate protection.

Christian Bruch, CEO of the Munich-based technology group Siemens Energy, sees the new law primarily as an opportunity – for example for the future technology of hydrogen. At the balance sheet press conference in mid-November, Bruch said: “What I think I’m seeing for the first time on a larger scale worldwide is a commercial business model for green hydrogen. Because of the circumstances in the USA, because of the support mechanisms, and that’s done wisely.” It doesn’t help to whine about the “Inflation Reduction Act”, according to Bruch, “but you have to react to it”.

The EU sees it as protectionism

The question is how? Earlier in the week there was a meeting between representatives of the USA and the European Union. The German industry association BDI describes it as “not very successful” and warns against starting a subsidy race that is harmful to both sides. The core of the “Inflation Reduction Act” is a large climate protection package, says Claudia Schmucker of the German Society for Foreign Relations tagesschau24. “The problem is that the US wants to create its own jobs and strengthen its own production.”

The foreign trade expert gives examples: “For certain tax credits for e-cars, there is a provision that it has to be ‘made in America’. Batteries have to be manufactured in the USA, or final assembly has to take place in the USA. And that’s from the classified as protectionism.”

concerns in the middle class

French President Emmanuel Macron even described the law as a “job killer” for Europe. And German medium-sized companies are also sounding the alarm. Small and medium-sized companies that do not have a location in America but want to continue exporting their goods and primary products to the USA see themselves as massively threatened by the US subsidy program.

The Bundesverband Mittelstand is therefore calling for something that has been overdue for years from an economic point of view: more investments, faster approval processes and less bureaucracy. The US anti-inflation program is a wake-up call for German economic and location policy.

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