Mar 08, 2023

The EU Should Avoid a Trade Conflict with the U.S.

A New analysis from CEPOS shows that there is no justification for the EU to respond to the American Inflation Reduction Act (IRA). This will make the green transition in Europe more expensive and may also escalate a trade conflict across the Atlantic.

The EU is considering responding to the American climate package with extensive state support for green transition and climate-neutral industries. However, EU countries already provide extensive state aid, not least for green transition and green industries. In addition, the EU’s recovery package from 2020 contains massive green state aid.

It looks like an escalation of a trade war, and it is not very well justified on the part of the EU. With its plans to step up state aid, The EU will end up with around three times the American state aid when compared to the size of the economy,” says Otto Brøns-Petersen, head of analysis at CEPOS.

The EU should not start a state support race with the Americans, as many billions have already been allocated to green technologies in Europe. While IRA represents 0.15% of the US GDP (over ten years), the new CEPOS analysis shows that EU politicians have already allocated 0.38% of the EU’s GDP to green technologies.

It is primarily money that has been set aside in connection with the EU’s recovery package from 2020. Nevertheless, the EU Commission has proposed a counter-offensive with several different support initiatives, which will add up to around 0.10% annually. of the EU’s GDP, the CEPOS analysis shows.

In addition, the individual EU countries already provide extensive state support for the green transition. “Direct state aid is not a cost-effective method for green transition, and the costs primarily affect the countries that provide the aid. It is absolutely the wrong way to go,” says Otto Brøns-Petersen.

Read original article here (in Danish).