Successive crises are breaking the rules of the free trade game in the name of climate action

Posted on January 23, 2023

The European Commission has announced a broad aid plan for the development of clean technologies in direct response to the protectionist measures of the American deflationary act. These measures indicate radical changes in the approach to international trade relations. Recurring crises and disruptions to global supply chains prompt states to seek to secure their economic sovereignty, even if it means breaking free trade rules.

Now is the time to make history in the cleantech economy“said Ursula von der Leyen at the World Economic Forum held in Davos on January 17. The President of the European Commission explained in detail the strategy he intends to implement in front of the world leaders in front of the Inflation Reduction Act (IRA). In particular, about 370 billion dollars in subsidies for green technologies. which provides and urges to attract European industries from China.

“We will propose a new regulation for the zero-emission industry. The goal will be to concentrate investments on strategic projects.“in the wind and solar sectors, heat pumps, clean hydrogen and energy storage. And”simplify and speed up permit procedures for new cleantech manufacturing sites“, he explained. He also promises to relax European rules on state aid and to create a European sovereign wealth fund in the short term.”To avoid the fragmentation effect of the Single Market“and “Supporting the transition within the EU“.

The events, particularly supported by the Franco-German pair, will meet at the summit this weekend to mark the 60th anniversary of the Elysée Treaty. But if these public assistance plans are a priori good news, it all depends on how they are implemented. Because international cooperation on climate-related issues remains important.

“Very strong shock wave”

“We entered de-globalization with a very strong dynamic of territorialization of activities, Guillaume Vuillemey, professor of finance at HEC and essayist on de-globalization, analyzes*. More and more countries are realizing that almost absolute free trade no longer allows them to meet certain essential needs, be it medicine, masks or, more recently, Ukrainian wheat. And they are starting to worry about security of supply by shifting production“.

The new American law is one shining example. It undermined international trade practices by making subsidies conditional on the development of green technologies. These will be paid only to companies that manufacture on American soil, excluding importers. “The failure of the American administration to take into account the effects that the IRA could have on the allied countries created a very strong shock wave.“, explains Elvire Fabri, senior researcher at the Jacques Delors Institute, which is responsible for the geopolitics of trade. A shock wave prompted the Europeans to change their approach to trade relations, but a less protectionist attitude than the United.

The Americans, along with the IRA, want to accelerate the separation of their economy from the Chinese economy. Europe’s position is different. It’s about protecting the single market from being closed, in the logic of reducing the risk of excessive dependence on Chinese imports.” Elvire Fabry analyzes. In addition to the aid plan announced, the EU has thus introduced more protective mechanisms for the single market, such as the carbon cap adjustment mechanism, which allows importers to ensure that they comply with environmental regulations similar to those in Europe, or even the next directive on the European duty of care. And for good reason, the Old Continent cannot be fully autonomous in certain matters, such as raw materials. Therefore, the EU prefers to diversify its supply rather than cut ties.

“If we don’t think about emerging markets, we’re all set”

However, this transformation of international trade practices is on a tightrope. If government aid plans are focused on the development of clean technologies, a real trade war between large regional blocs could have the opposite effect. “Although globalization has led to the degradation of common goods (health, education, air quality, etc. NDR)the problem is finding a balance between goods that require government intervention and goods that should remain in free trade, Comment by Guillaume Vuillemey. For example, we could say that countries facing scarcity of resources (oil, minerals, etc.) could coordinate to manage them wisely, but the opposite could happen.

For example, the fight against climate change is a global issue that requires cooperation in some sense. because “If we try to green industrialized (countries) and don’t think about emerging markets, we’re all out of business.”, the managing director of the International Monetary Fund (IMF) warned Kristalina Georgiyeva during a round table held at the World Economic Forum. “The main issue is not China first, America first or Europe first. The main question is first of all the climate” French Economy Minister Bruno Le Maire confirmed this in his turn at the same round table.

Concepcion Alvarez @conce1 and Arnaud Dumas @ADumas5

* “In times of globalization, protection of common goods against free trade”, Guillaume Vuillemey, Le Seuil publications, 128 pages, October 2022

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