January 26, 2023 - 3:01pm

One of the most underreported stories right now is the brewing trade war between the EU and the US. The latest bone of contention is Joe Biden’s Inflation Reduction Act, which contains a massive programme of subsidies for American industry. 

At Davos this month, both the German Chancellor, Olaf Scholz, and the Commission President, Ursula von der Leyen, complained about the US policy. The Belgian Prime Minister, Alexander de Croo, has accused the Americans of using subsidies “in a very aggressive way to attract investment”.

One can understand the EU’s insecurity. Just as European industry is buckling under the strain of the energy crisis, along come the Yanks flashing the cash. For instance, the Financial Times has a story about Marvel Fusion — “one of the few European start-ups trying to deliver zero-carbon fusion power”. According to the company’s CEO, the availability of subsidies means that it is being “pushed by investors to move to the US”. Europe’s politicians are surely right to be worried. 

And yet their bellyaching is also grotesquely hypocritical. What the likes of Scholz and von der Leyen conveniently overlook is that the EU itself is a multi-layered mechanism for channelling subsidies to favoured economic interests. There’s the Common Agricultural Policy, of course — but also the solidarity funds, which have ploughed vast sums into ‘peripheral’ Europe. This is no act of charity: the ‘core’ countries — above all, Germany — have benefited hugely from the upgrade to their economic backyard. 

There’s also the protectionism provided by the single market plus the effect of the single currency, which has permanently fixed exchange rates to the advantage of German exporters. Remarkably, the sucker British were persuaded to pay into this mercantilist scam for decades.

While the Inflation Reduction Act blatantly favours domestic investment in clean energy tech, the same can be said for, say, the favouritism of the French towards their own pet ventures. Does anyone really imagine that France built the western world’s leading nuclear industry on a level playing field?

And then there’s the biggest scam of the lot: the Chinese economy — which is one giant mass of trade distortions. As Brad Setser of the Council on Foreign Relations points out, US policy “discriminates in favor of North American EVs [electric vehicles] and batteries… But how is it different from China’s very similar (if not more restrictive) policies that made China’s EV industry an export powerhouse?”

The inconsistency of the European response is glaring. Indeed, the Germans are going out of their way to facilitate China’s expansionist trade policies — for instance, by allowing a Chinese company to buy a stake in the EU’s second largest port, Hamburg. It’s as if they’ve learned nothing from the collapse of their cosy relationship with the Russians. 

Which brings me to the rankest of all EU hypocrisies. While the Europeans protest one set of American subsidies, they’re quietly grateful for another: Uncle Sam’s ongoing contribution to Europe’s security. Just compare European and US levels of military aid to Ukraine. It’s not even close. 

I don’t say any of this to take sides. America’s pork barrel policies stink too. In any case, there’s an urgent need here for the nations of the West to unite in the face of danger. To survive the existential threats coming our way, we must resolve our differences. However, that won’t happen unless we’re all honest with ourselves — which, quite clearly, we’re not.  

Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.