The EU’s trade war hypocrisy
America is only copying what the European single market has done for decades
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”.
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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.
Why is anyone even remotely surprised about this? Self-awareness seems to be rarer than hen’s teeth in the hallowed corridors of Brussels. In the last few years alone, we have seen:
Genuine surprise that citizens are turned off by the lack of transparency and wheeling and dealing that goes on at EU level and therefore don’t bother voting in the EP elections…whereupon “real democracy” and the application of the Spitzenkandidat process were promised to select the next president of the Commission – no back room deals! And yet we are landed with Ursula von der Leyen…as part of a back room deal. Obviously.Feigned shock and a round of “we must do betters” when the EP corruption scandal broke…as if vast swathes of European don’t already assume as standard that Brussels is a complete swamp.Big rounds of back-patting for how well they’d handled Brexit and stayed united…it had gone so well in fact that they decided to take the same approach to CH in their negotiations for a framework agreement. The result: a relationship with Britain that will take years to patch up and a mess of broken down negotiations where CH-EU relations used to be with no resolution in sight. Yes, an excellent modus operandi, beneficial to all involved and not arrogant and off-putting at all!Now it’s the Yanks’ turn to stand there, thinking “you cannot be serious!”
Most British citizens will fail the most basic test about UK Governance. You have (literally not figurately!!!) MPs voting for bills that they have never read!
But let’s pretend that “the day after” the “real patriots” take over UK GOV …they will go through bills in details.
That’s the best whataboutery you can come up with?
All factual and depressing at the same time. So, I don’t want to hear lectures about good governance, informed citizenry etc.
The US can read the writing on the wall for the globalised trade system as well as anyone. They are busily reshoring the supply chains for their key industries which takes a lot of subsidy. Obviously the give it a green veneer but it is clear what it is: America First without Trump.
This is the core point. What is happening is America First, just without the gaudy side of Donald Trump. It’s protectionist to the extent that resilience is protectionist. As we all found out in the pandemic, if you don’t have domestic production then you’ve got some very fine global-aspirational political principles and not much else. JIT is a very efficient but very brittle thing.
This is what deglobalisation looks like – government-secured supply chains, national critical needs identified. Quite what’s surprising about any of this to EU leaders is anyone’s guess. Indeed I suspect that the most likely benefit of Brexit will in time lie in ending (as far as possible) the EU’s procurement and state aid strictures.
Too often the EU has given the impression that it sees reliance on the US for security on Russia for energy and on China for corporate profits as somehow being the politics of rationality. The US is just being honest – it’s not even clear to me that the European Commission has any idea what, ‘Europe First,’ would look like.
Efficiency and brittleness are two sides of the same coin. I am very worried; today’s societies are far less redundant and resilient than those of a century ago. Instead of having N small-/medium-sized organizations performing role X, we now have one or two. More efficient, yes, but…
Franklin is right, and us Brits were ‘suckers’ to put up with the net subsidies involved in our EU membership. No longer, of course, and this article simply reinforces what anyone with any insight into the EU has known for a very long time.
Starmer, and any other politician who shows the least equivocation about the EU will be defenestrated in short order.
By all means, let’s improve our relationship with our European neighbours – on our terms. You can be cordial with neighbours but if they’re invited round to share a decent bottle of £50 wine and recipriocate with a £4.99 bargain from Asda, you don’t invite them again.
Franklin is completely wrong.
Starmer, and any other politician who shows the least equivocation about the EU will be defenestrated in short order.
No he will not. but you can dream about it.
The reality of Brexit is that c. 20% of Leavers have changed their mind, the young people are 80% against Brexit and mother nature is thinning the Brexiter herd.
As Brexiters always complain (partially right) about Remoaners dominating culture/media they will make sure to blame everything on Brexit.
Brexiters’ arguments “EU is to blame” or “it will take 50 years to pass a judgement on Brexit” are not going to fly.
Labor and Remoaners should blame everything on Brexit and the Tories.
Dream on ! No one’s going to reopen the Brexit can of worms for at least 5-10 years. Far bigger issues to deal with.
Besides which, with every passing year the long term economic decline of the EU (in a global context) will become ever more clear to people in the UK.
You still appear to buy into the obvious fallacy that people’s opinions don’t change as they get older.
the long term economic decline of the EU
Who is rising? China with a declining population?
India (from dirt poor levels)? Egypt?
EU (northern countries) just have to outperform UK -and they will! – for Remoaners to blame Brexit.
obvious fallacy that people’s opinions don’t change as they get older.
Sure, have people abandoned their support for gay marriage as they have gotten older? People change their mind when it comes to economics (older, homeowner, children) but not when it comes to their identity and young people see themselves as European. That is what geriatrics leavers never understood.
Asia is rising. You seriously haven’t noticed ? And yes, that includes India, which you are unwise to dismiss in such a cavalier manner – have you ever been to Bangalore, for example ?
Keep flinging the insults if you must. The diehard EU fanatics never listened and they’re still not listening. So they’ll never learn and never understand.
Reality check: I myself changed from being strongly pro-EEC to voting leave. I used to see myself as “European”. And I don’t believe my identity actually changed.
Here’s what did change:
#1 – I grew older – and that naturally brings different perspectives
#2 – my perception of my own identity almost certainly changed (not the same as the identity changing – younger people are often still finding their identity – or assuming one as an act of rebellion)
#3 – Britain became relatively wealthier and more successful relative to the EU – and recovered its self-confidence. When I started travelling to Germany on business in 1988, we were very much poor relations – they had the new, expensive shiny cars and ours were shabby. Engineers there got paid at least 50% more than we did in the UK. Within 10 years, that gap had closed – you flew back into Heathrow and noticed that we had the new, expensive, shiny cars.
#4 – Europe lost it’s place in the industry I worked in (semiconductors – silicon chips). When I started out, the world market share was roughly 35% US, 35% EU and 30% Japan – “others” barely troubled the scorers. Today, it’s more like 45% US, 10-15% EU, 10-15% Japan and a massive rise in Korea, Taiwan and China. Korea’s chip production is almost certainly bigger than the entire EU’s (and Taiwan’s is several times larger). Those are two small Asian countries. Europe also lost its once dominant position in mobile phones and telecoms. The next thing to go will likely be the automotive industry.
#4 was no accident. A direct result of lack of decent leadership and the corporatism and dominance of big, stale companies that the EU mindset thrives on. And the insane energy and welfare policies – effectively an economic suicide note.
This can only happen in the post-truth world we are living today. Europeans are complaining about massive American subsidies to a renewable industry that will literally collapse once the subsidies are gone.
It would be hilarious if it wasn’t so tragic. Here’s a thought, maybe avoid the pointless subsidy war for EVs, batteries and renewables, and focus on products like food and other staples. Or maybe tear down the wall of regulations that crush the free market.
If you’re totally invested in climate catastrophism, maybe invest in nuclear energy and start selling it to the suckers building wind and solar.
I agree, let other countries/blocks fight about stupid things and concentrate on what matters, free trade and access to resources. I think nuclear a good place to focus as easy fossil fuels are limited, a bit of deregulation and training needed here though.
The point about mercantilism and the necessarily beggar-thy-neighbour attitude that underpins it is that the diplomacy that fronts it has to simply undertake bare-faced lying to the rest of the world in the knowledge that the rest of the world isn’t fooled.
The EU’s representatives know perfectly well that they’re peddling bullshit and they know that the people they peddle it at also know. It doesn’t change the fact that their job is simply to force their own advantage where they can. This worked well when the USA was a relatively open economy, and it stopped working so well when Donald Trump went public on the bullshit. The Biden administration is doing exactly what Trump started off doing, except that it is also adopting the EU’s irritiating habit of sugar-coating its bullshit in the form of mealy-mouthed pieties about environmentalism, democracy and prosperity, none of which it actually gives a damn about.
I say all this with contempt for both of them, of course, since I’m a free-trader who has no time for protectionist nonsense whether Trump is doing it as a sort of political Bruce Springsteen tribute act, or the EU’s doing it with its trademark puke-inducing intellectual dishonesty. But it is nonetheless funny to see Eurocrats complaining that it’s not fair when someone else plays their game better than they do themselves.
Domestic politics both sides of the Atlantic are driving much of this. France and German car makers want to push back hard on US restrictions. EU scale gives them added clout. But it’s a strength of the relationship that whilst battling over this EU-US are largely united on Ukraine. Politics can be messy at times though.
Agree with Authors point about risk of Germany committing same mistake it’s done with Russia with China. But Author fails to mention fact £130billion+ of assets China owns in the UK with 200+ companies owned. And of course what is really meant is owned by the CCP. Just ponder that.
Which takes us to where does the UK sit whilst these US-EU trade wars play out? Well on battery technology we already know via BritishVolt. And our leverage in this fight is greatly reduced and Global Britain risks having to beg for crumbs.
That said as regards subsidies some good things in the new UK agricultural subsidies encouraging more environmental friendly farming. And at last an example of us using some Brexit freedoms in a productive, better way.
So Chinese own assets in UK…like what a beer maker?
What are they going to do? Shut down the operations. move the machinery to China and…what …there will be no more beer making in UK? Or are they going to take home East London skyscrapers?
Nuclear power plants, (Hinckley Point) MG Rover, Heathrow airport, water companies, Diageo, major shares in Astra Zeneca, HSBC etc etc.
You can think all this is benevolent but increasingly it’s not looking like that. Read ‘Spies & Lies’ Alex Joske and listen to the national security and Armed Forces Congressional cmttees.
A few years we could convince ourselves otherwise. But Xi’s actions have increased alarm. We will awake.
And the Author here made the point about Hamburg port.
“It’s as if they’ve learned nothing from the collapse of their cosy relationship with the Russians.” – They probably haven’t!
I said a while back that Franklin was optimistic when he said “Experience is a dear master, but fools will learn at no other.” The modern world is showing that they won’t even learn then!
What an absurd article (what is new?) by Franklin.
1) CAP – US too has it own agriculture policy. Based on studies by University of Missouri (I simply do not have the time or the knowledge to go through the US farm bill) US spends about 60% of what EU spends on CAP. Taking into account the numbers of farmers in EU (and their relative poverty especially in the East) it is hardly outrages program. And, most importantly, agriculture is not part of WTO rules. At least Europeans get high quality food, US taxpayers got (I am not joking – google it) Government Cheese!
2) “solidarity funds” have been used to build infrastructure, clean up the environmental communist disasters and plant trees. How is that illegal under WTO rules? How can you build nuclear power plants (or any energy generation) and break international trade agreements? infrastructure is national.
3) “single market/single currency” – how is any protectionist?
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