EU prepares subsidy program to shield vital industries from US' IRA
Serious concerns have been raised since Washington adopted the Inflation Reduction Act (IRA), which many officials believe will entice crucial enterprises to invest in the US rather than the EU.
News outlet Politico reported on Wednesday that the EU is planning to launch a bloc-wide subsidy assistance program to shield its own industries from US competitors.
In light of the sweeping energy crisis throughout the EU, serious concerns have been raised since Washington adopted the Inflation Reduction Act (IRA) on August 16, 2022, which many officials believe will entice crucial enterprises to invest in the US rather than the EU.
Some EU officials have gone as far as criticizing the bill for breaching international trade rules.
The EU has „serious concerns“ about the US Inflation Reduction Act, accusing the US of breaching international trade rules— Yoda Research (@YodaResearch) November 7, 2022
=> In a nutshell the US 🇺🇸 is further pushing the deindustrialization of the EU. Now the EU warns of a trade war 🇪🇺🏚️
Ze German Finance Minister Lindner 🇩🇪 https://t.co/sC0g75K4Wg pic.twitter.com/oZeIZaeuYd
The IRA specifically covers a wide range of areas, including energy-related legislation.
It increased the Investment Tax Credit for renewable energy projects from 26% to 30% and extended it to all storage projects.
It also includes tax credits to manufacture solar panels, inverters, and racking components.
In addition, there are more tax credits for electric vehicles, electrical panels, heat pumps, and many other products directly related to the renewables industry.
According to sources quoted by Politico, the EU has been working on launching an emergency package to direct money to its vital industries.
The sources said it is crucial that the bloc acts fast because companies are now making the decisive choice to know whether they will relocate to the US or remain in the US.
On November 18, a co-leader of Germany's ruling Social Democratic Party (SPD), Lars Klingbeil, said Germany is currently facing the risk of undergoing a process of de-industrialization due to partial disruptions in supply chains, staff shortages, and soaring energy prices.
Some argue that Germany may be forced to go back to the firewood era, as its gas stockpiles won't be enough to fight off the upcoming cold in Europe.
The bill promises to put the difference of about $300 billion toward deficit reduction. It will also provide $369 billion in funds for energy security and climate change. $64 billion will be allocated to the Affordable Care Act over the next ten years.
Moreover, it will raise $739 billion in revenue by imposing a 15% corporate minimum tax. Printing that much more money to solve inflation does not seem to be a valid approach. But because the US dollar is the global reserve currency, there is no real trouble it that.
The bill will also aim to reform prescription drug pricing policies, boosting Internal Revenue Service tax enforcement and addressing the carried interest loophole.
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In recent months, relations between the EU and the US have not been as smooth. Last month the EU condemned the subsidies offered to American companies in President Biden’s Inflation Reduction Act, giving them unfair leverage over their European rivals.
French President Emmanuel Macron has recently expressed that such subsidies on electric vehicles discriminate against the EU and other trade partners.
Macron also slammed the US for practicing double standards as it offers EU gas prices 3 to 4 times higher than the prices in the American domestic market.
"American gas is 3-4 times cheaper on the domestic market than the price at which they offer it to Europeans.
These are double standards," Macron stated, adding that "it concerns sincerity in transatlantic trade" and that this issue should be addressed.
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