DAVOS, Switzerland — It was a tricky balancing act for Ursula von der Leyen on Tuesday: Assure European leaders their beleaguered companies will get cash while insisting the EU is not turning protectionist.
Speaking to hundreds of CEOs, politicians and global leaders at the World Economic Forum, the European Commission president set out a grand plan to keep Europe’s industry competitive in a race to attract green tech and climate-related investment.
The subtext: America’s multi-billion dollar Inflation Reduction Act, which includes a $369 billion green subsidy package, is fueling European nightmares of industry and investments fleeing the Continent just as the economy turns soporific.
“The next decades will see the greatest industrial transformation of our times — maybe of any time,” von der Leyen declared. “And those who develop and manufacture the technology that will be the foundation of tomorrow’s economy will have the greatest competitive edge.”
That transformation must happen with allies working together, not at odds, the EU chief argued.
“Our aim should be to avoid disruptions in transatlantic trade and investment,” she said. “We should work towards ensuring that our respective incentive programs are fair and mutually reinforcing.”
The rallying cry for governments to help their own industries is not the kind of message that typically goes down well in Davos. After all, the World Economic Forum is in many ways the symbol of free trade and globalization. But America’s move to shore up its economy has elicited a panicked response from Europe, which fears it might be left behind as the world’s economy transforms.
While many of the proposals von der Leyen listed Tuesday have been previously previewed — the EU’s upcoming “sovereignty fund” to help boost green and digital investments, for instance — there were some new details.
Von der Leyen announced a new Net-Zero Industry Act that will set targets for 2030. The effort will try to increase clean tech funding and fast-track permits for relevant production sites.
“The aim will be to focus investment on strategic projects along the entire supply chain,” she said.
She also gave new details about the EU’s plans to temporarily loosen its historically strict rules governing when governments can offer companies direct state aid. She said the bloc would look to offer companies more “simple tax-break models” and accelerate the sign-off process for other state aid efforts.
Yet von der Leyen was also careful to highlight the EU’s continuing commitment to free trade — a move to placate both the international community gathered in Davos and the EU’s free-trade crowd nervous about the bloc’s subsidy shift. The EU leader even stressed the need for an “ambitious trade agenda,” noting the bloc is working to conclude agreements with Mexico, Chile, New Zealand and Australia — and aiming to make progress with India and Indonesia.
She also refrained from criticizing the United States — despite the rocky state of EU-U.S. relations over the IRA.
“It is no secret that certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies.” But a solution might be in the works, she told the packed Congress Hall.
“We have been working with the U.S. to find solutions, for example, so that EU companies and EU-made electric cars can also benefit from the IRA,” she said — without giving details of what compromises the EU may actually achieve.
Let’s unite against China
Instead, she directed most of her ire at China — portraying the transatlantic subsidy race as not a competition but a chance to jointly marshal western resources against a common foe.
Speaking only hours before Chinese Vice Premier Liu He, von der Leyen accused the Asian power of heavily subsidizing its own industries and poaching companies from Europe and elsewhere “on the promise of cheap energy, low labor costs and a more lenient regulatory environment.”
China can also essentially hold supply chains hostage, she cautioned, noting Europe is 98 percent dependent on “one country — China” for rare earth minerals, the building blocks of wind power, hydrogen storage and batteries.
The EU and U.S. must work together on confronting these problems, von der Leyen stressed. She reframed the recent U.S. trove of subsidies as an additive to money the EU has already earmarked to help the Continent meet its climate targets.
“Together, the EU and U.S. alone are putting forward almost €1 trillion to accelerate the clean energy economy,” she said. “We should set out how we can jointly benefit from this massive investment, for example by creating economies of scale across the Atlantic or setting common standards.”
Yet for all her surety, von der Leyen will struggle to reach a cohesive European position on the subject.
Just as von der Leyen was speaking on the Davos stage, European finance ministers were locked in discussion back in Brussels about how to bolster Europe’s own industrial base, with divisions among the EU’s 27 countries about how to respond to America’s hefty subsidy package. Many countries believe loosening state aid rules will simply benefit wealthy countries like France and Germany, which can afford to funnel cash to struggling companies, leaving less-resourced countries unable to compete.
The U.S., too, has not yet guaranteed it will give European companies the access they want to the IRA’s financial incentives.
In other words, the subsidy fight has not yet been averted.
