Germany Could Use Subsidies Instead of Tariffs to Stop Industry Decamping to US

An e-Golf electric car with the VW logo on a rim is pictured in the German car manufacturer Volkswagen Transparent Factory (Glaeserne Manufaktur) in Dresden, eastern GermanyJames TweedieA trade war between Europe and the US is looming as EU member states fear new legislation in Washington is designed to de-industrialise the continent’s economic heartlands on the Atlantic and Baltic coasts.The German government is considering flouting European Union (EU) rules against state aid to industries to counter US attempts to lure away investment and jobs.Germany and France have protested that so-called Inflation Reduction Act, currently working its way through the US Congress, is in fact designed to attract large manufacturers to relocate across the Atlantic on the promise of far lower energy prices.Western sanctions on Russia, strongly advocated by the US and UK in response to the conflict in Ukraine, have prompted a crippling energy shortage in Europe. Prices had increased several times over even before the sabotage of the Nord Stream 1 and 2 pipelines that carry Russian gas across the Baltic Sea to Germany.That has raised fears of a trade war between Europe and the US, with punitive tariffs in a bid to force firms such as German car giant Volkswagen keep their factories within the bloc.German MEP Bernd Lange, the chairman of the European Parliament’s International Trade Committee and a member of Scholtz’ Social Democratic Party, said governments must act urgently to head off that threat.”There are only a few weeks left,” Lange warned “Once the act is implemented, it will be too late for us to achieve any changes.”And Thierry Breton, the French appointee to the EU’s executive Commission and its head of internal markets, has called for a “European Solidarity Fund” to help with “mobilising the necessary funding” for batteries, microchips and hydrogen among others key technologies.WorldBackfiring Russia Sanctions May Fuel Growing US-EU Rift Amid ‘Fracturing of Support’ for Kiev11 November, 06:47 GMTA German Economy Ministry spokesperson said that in the face of the looming US legislation, “we will have to come up with our own European response that puts our strengths first.””The aim is to competitively relocate green value creation in Europe and strengthen our own production capacities,” they added.However, the spokesperson cautioned that both sides “must be careful that there is no subsidy race that prevents the best ideas from prevailing in the market,” since “green technologies in particular thrive best in fair competition; protectionism cripples innovation.”


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