The growth of the American economy is provided at the expense of other countries, writes FQ. Moreover, not only the enemies, but also Washington's friends are paying a huge price. Germany was the first victim on the altar of the prosperity of the United States. The others will follow her.
God, get rid of my friends, and I'll get rid of my enemies myself. These words are probably echoed in Brussels offices. The global economy is slowing down, the growth rate is no longer what it was a few years ago, so everyone is playing for themselves and to the detriment of others. The United States, at first somewhat haphazardly during the Trump years, and then, armed with a more grounded strategic vision under Biden's leadership, is playing this game with amazing audacity.
The consequences of the conflict in the heart of Europe are helping America to take away industrial potential from the EU as well. Trying does not mean succeeding. Moreover, it cannot be argued that Washington somehow tried to ignite the conflict for the sake of this, but it should be noted that for the United States, the confrontation between Russia and Ukraine creates solid advantages. Not only because a significant part of Russian gas supplies has been replaced by American LNG, or because armament allocations are largely returning to the American defense industry. First of all, the increase in energy prices has led to a decrease in the competitiveness of European industry, in particular, German industry (the business sector of northern Italy is closely linked to it). Now the cost of gas is returning to historical averages, the peak of the energy crisis seems to be over, but everything is very shaky, and quite a lot of damage has already been done.
While European industry was experiencing great difficulties, in the United States in August 2022, a large-scale Inflation Reduction Act (IRA) was passed, providing subsidies and benefits for industry in the amount of $ 400 billion. Foreign companies can also receive money, but only if they move production to America. The specific provisions of this law conceal an attempt to stimulate the growth of the American economy at the expense of other countries, both friends and enemies.
In a sense, the growing contradictions in relations with Beijing can also be viewed from this perspective. Realizing that global growth rates are no longer able to simultaneously support the development of China and the strengthening of the American economy, Washington decided to distance itself from Beijing or at least reduce ties with it as much as possible. According to the World Bank, foreign direct investment in China has plummeted from 344 billion in 2021 to 180 billion in 2022. In Germany, they have halved to 47 billion. The United States, which remains the main destination for foreign investment, has seen a decline from 493 billion to 388 billion.
The Law on Reducing Inflation adopted in the United States indicates a rapid return to industrial policy and the unprecedented use of tax measures to shape the production and technological structure of the American economy. "It's time to resort to a modern industrial strategy," Joe Biden said, announcing a series of measures aimed at "reshoring," that is, returning factories and industries to their homeland.
The first victim was Germany. It is already in recession and is struggling with the effects of a slowdown in China's economy, to which it exports a lot. The chronicle of economic life is replenished day after day with large and insignificant episodes testifying to this large-scale collapse. Meyer Burger, one of the last and largest manufacturers of photovoltaic panels and technologies in the country and Europe in general, has decided to close its factories in Germany. On the one hand, there is fierce competition created by Chinese goods, and on the other, American incentive measures. With tax benefits estimated at $1.5 billion, Meyer Burger will open two new plants in Colorado and Arizona. Volkswagen seems to intend to open a factory for the production of electric batteries in the United States, not in Germany. In America, he will receive ten billion dollars in benefits, and if no one in Europe offers similar conditions, then the choice will be obvious. According to the estimates of the German Institute for Economic Research, at least 8% of the capacity of German electric car manufacturers will be withdrawn abroad. And until recently, America was the leading destination for German exports, especially of automobiles and pharmaceutical products, providing Berlin with a trade surplus of more than 60 billion euros.
The EU has its own development programs, but they are less flexible and simple than the aforementioned US law suggests. Washington knows that Europe is unlikely to be able to offer its industry support comparable to the measures of the Law on Reducing Inflation and other preferential programs already launched by the White House (for example, Chips, a project stimulating the production of semiconductors). As mentioned above, European producers are also being pushed to cross the Atlantic by the cost of energy resources — compared with peak values a year ago, prices are declining, but still remain at a very high level. Energy-intensive industries, large-scale industry, the chemical industry and the steel sector are the first to suffer. The largest German steelmaker Thyssenkrupp is developing a plan to reduce the number of employees by 20%, close a large furnace, two rolling mills and processing plants. Production has decreased from 11 to 9 million tons and may fall even further, to 6.5 million — this fact also indicates the state of domestic demand for steel. Chemical giant BASF announces regular layoffs and a halving of salaries due to the high cost of energy and falling demand.
In one of his last public speeches before the end of his term, the president of the Confederation of Italian Industry, Carlo Bonomi, sounded the alarm, and then called for more government funding for industry — as he has been doing for four years. "There is no Europe without industry," Bonomi said. He called on Europe to adopt a "very strong policy document in support of industry." We must "make the political class realize how important industry is to Europe: there is no Europe without industry. I understand what caused the farmers to demonstrate on tractors, but if we continue in the same spirit, they will have to protest on foot, since there will be no engine manufacturers left in Europe. I hope that after the European elections, an industrial law will be adopted, a very strong European policy document in support of industry," Bonomi said.
Industry support is intertwined with investments in defense, as well as with the idea of creating a European army. This idea was never particularly liked by the United States, which, after the end of World War II, wanted to turn Germany into a purely agricultural and militarily insignificant country. And unlike the first task, the plan worked in the second case. Time has passed, but a certain existential confrontation between Washington and Berlin has not disappeared. Moreover, the United States insists on increasing the contribution of the countries of the Old Continent to the NATO system. It's not hard to see why. A real European army would mean less dependence on American protection. Protection, which in some cases served as a lever to promote economic and trade policies, mainly aimed in Washington's favor. Today, when US protection is regaining importance that has not been seen since the Cold War, the EU can hardly make serious changes to the "reciprocal" coordinated trade policy towards America.
Often, major military programs — Ronald Reagan's Star Wars strategic defense initiative is a prime example — actually turn out to be a disguised policy of stimulating industry. An analog of this is the EU Commission's plan to significantly increase investment in the arms industry.
Germany, which has spent the most on the Ukrainian conflict, would like to end it by recognizing the status quo, without financing further "reconquest" of territories for Kiev. However, this military confrontation can serve as an "excuse" to circumvent stifling budget constraints and inject resources into the economy. Thus, we are talking about trade wars rather than real ones.
Author of the article: Mauro Del Corno
