Page 2: The call of money

Contents

Companies – including European ones – followed the call of money. The Trade Representative's report states that the IRA has enabled the US economy to make significant investments in clean energy technologies, supply chains and production. The additional tariffs on batteries, permanent magnets, electric vehicles and solar products would support these investments and encourage diversification away from Chinese sources.

This applies not least to the solar industry: although China currently has an "overwhelming share of the global market for the production of solar products", the USA is the second strongest and is growing strongly – and would therefore serve as additional leverage to dissuade China from its criticized practices.

But what do the US sanctions actually mean for the EU and Germany against this backdrop? German car manufacturers are warning against overreacting. "We need China to solve global problems," says a spokeswoman for the German Association of the Automotive Industry (VDA). "In addition, China plays a decisive role in a successful transformation towards electromobility and digitalization – a trade conflict would therefore also jeopardize this transformation."

Is the China glut coming?

A "critically constructive dialog with China" to prevent subsidies and unfair trade practices "on both sides" is the order of the day for the VDA. Trade conflicts and additional tariffs, on the other hand, would have a negative impact on both sides. The US tariffs would hardly affect the EU market – firstly due to the low volume of trade, and secondly because cars produced for the US market are not automatically of interest to customers in Europe.

The German Electrical and Electronic Manufacturers' Association (ZVEI) is more concerned: the EU target of doubling the global market share of semiconductors by 2030 is ambitious, but must now be adhered to all the more. It is about a level playing field for all producers in all markets. "China's state-subsidized products – chips, batteries and more – must not be diverted to Europe on a large scale," warns Wolfgang Weber, Chairman of the ZVEI Executive Board. "The EU must protect itself from this and must not shy away from sanctions if unjustified subsidies are involved."

The Chairman of the Trade Committee in the European Parliament, Social Democrat Bernd Lange, does not want to rule this out - but certainly does not want to act too hastily. The "tariff fire" from the USA took him surprised, he says in an interview with heise online. The flow of goods to date had not posed a major threat to the US economy. Accordingly, he also wants to take his time to analyze the possible effects on the EU.

"The risk is there," Lange admits, but the EU has done well so far by analyzing each individual case of possible violations individually and punishing them if necessary. This has worked well in the past, for example in the case of illegally subsidized Chinese e-bikes. Slipping into protectionist measures must be avoided - isolationism is not a good model for the EU. The aim must be to improve the competitiveness of European suppliers, for example in the area of highly efficient solar cells or batteries.

Difficult situation

Other EU politicians expect much stronger effects. "The US punitive tariffs will lead to Chinese products flooding the European market and thus intensify competition for European manufacturers," warns Anna Cavazzini, Chair of the European Parliament's Internal Market and Consumer Protection Committee. The Green Party member sees a difficult situation: "Together with the massive subsidies from the USA under the Inflation Reduction Act, this is creating dangerous competition for European companies."

From a climate policy perspective, it would be good if the necessary goods were available on the market at low cost. "But from an industrial policy perspective and for the dangerous dependence on imports of strategic goods, this global subsidy race is dangerous," warns Cavazzini. She is therefore calling for the EU to take decisive action "against market-distorting subsidies that endanger domestic production."

This puts the Greens more in line with Daniel Caspary (CDU). It is true that redirecting the flow of goods towards the EU would lower prices in the short term, says Caspary. However, this could call into question the competitiveness of European suppliers. He calls for decisive action by the EU Commission in trade and industrial policy, in particular the diversification of supply chains for semiconductors, BEV components and solar.

However, Europe must also strengthen its own production capacities and respond to the US measures in terms of trade policy, says Caspary. "Be it through the introduction of countervailing duties or trade agreements with other economic areas." However, the member states would also have to do their part.

Experts advise caution

Experts from the German government are also calling for a cautious approach as a result of the US punitive tariffs when assessing the overall economic situation: "From our point of view, this is perhaps not the smartest strategy," says Monika Schnitzer, Chair of the German Council of Economic Experts, regarding the measures taken by the Biden administration. It is by no means clear that it is in the interests of Germany and the EU to follow the example of US policy.

Ulrike Malmendier, Professor at the University of California in Berkeley, takes a similar view. "The Chinese have engaged in a lot of state-subsidized overproduction, and goods are now being sold on the world market at dumping prices," she says, showing understanding for the US reaction. However, the situation for Germany is very different to that in the USA, whose economy is comparatively less intertwined with China. "Punitive tariffs are not always as positive for the country that wants to protect itself as is often portrayed."

(mki)