Biden’s Climate Change War Picks Up Steam In More Ways Than One

By Mish Shedlock of MishTalk

US allies are steaming mad at Biden for his climate change war. Let’s discuss who fired the first shot and who is escalating the war.

The Wall Street Journal comments Biden Starts a Climate Trade War

Wasn’t President Biden going to end Donald Trump’s destructive trade wars against allies? Apparently not. His “super aggressive” climate protectionism—to quote French President Emmanuel Macron—is infuriating U.S. friends and may set off a subsidy and tariff war.

U.S. allies are upset about the Inflation Reduction Act’s generous subsidies for domestically manufactured green technologies. In his trip to Washington last week, Mr. Macron said the U.S. subsidies may “perhaps fix your issue but you will increase my problem.” They’re really a problem for everybody.

The dispute involves tax credits for electric-vehicle and battery production. The IRA’s $7,500 consumer tax credit are restricted to EVs assembled in North America. Most foreign auto makers make EVs abroad and export them because the global and U.S. markets are still small.

The law also offers generous tax credits for domestic EV battery production, including a $35 per kilowatt-hour credit for U.S.-made battery cells, plus $10 per kilowatt-hour for domestically produced modules. These credits are expected to shave the cost of producing an EV battery by 30% to 40% and reportedly prompted Tesla to reconsider plans to make battery cells in Germany.

A Toyota spokesman in Canada spoke the truth: “While the IRA is being presented in many quarters as key legislation to fight climate change, in reality it is an act of trade protectionism.” The Canadian Steel Producers Association has warned that U.S. steel producers would also indirectly benefit from the climate subsidies without incurring carbon costs.

WTO Subsidy Violations 

Under WTO rules, Biden is offering illegal subsidies.  The EU’s game is illegal tariffs. 

EU Tries to Convince Trading Partners Its Carbon Tax is Not a Tax

Please recall my July 6 post EU Tries to Convince Trading Partners Its Carbon Tax is Not a Tax

The EU wants to stop “carbon leakage”. Supposedly a carbon tax will do the trick.

In order to keep profits up in the EU, the EU resorted to CBAM, a carbon border adjustment mechanism designed to cut emissions by creating financial incentives for greener production and by discouraging “carbon leakage.” 

The US way of doing business was to hand out subsidies to favored union businesses, especially GM. 

Since direct handouts are more efficient at graft than tariffs, the EU is now steaming mad. 

Inflationary Practices

Trump started trade wars with most of the world. Biden has escalated them. 

Both the EU’s CBAM initiative and Biden’s Inflation Reduction Act are inflationary. They raise prices on the end consumer by shutting out foreign competition. 

De-carbonization and deglobalization are both very inflationary. The Fed will have to kill a lot of demand to make up for competing idiotic trade and energy policies. 

For more on the IRA please see my November 30 post The EU is Very Worried About Biden’s Inflation Reduction Act (IRA)