The EU takes on US subsidies

The EU's Sovereign Seal aims to fight the US Inflation Reduction Act. How well will the European Union do in the global race to onshore and protect home industry?

| 5 min read

The move to onshore key industries and protect intellectual property is a main theme of modern economies. The European Union (EU) is responding in detail to US President Joe Biden’s wide-ranging proposals for the US. The EU websites contain the phrase “Let’s make sure the future of our industries is made in Europe”.

The EU is seen by some as a complex treaty-based arrangement between 27 largely sovereign European countries. It has always had as a main aim ever-greater union. It pursues it in a determined way step by step and has created a series of institutions similar to those of a nation state. Its central bank drives currency union and common banking and financial markets, replacing national ones. Its Court of Justice ensures a single law covering many topics throughout its territory with the EU Court as its final arbiter.

The European Commission (EC) carries out many functions of executive government and drafts wide ranging legislation for approval by the Parliament. Member states are bound to accept EU laws, judgements and instructions under treaty powers. Many decisions are made by majority voting in the European Council and the Parliament. European law now covers many areas of business and public life throughout EU territories and takes precedence over national laws.

Three-pronged attack

Last week, the EC President Ursula von der Leyen asked for an additional €66bn for the budget to strengthen its actions in three main areas. A Ukraine facility to assist a neighbour during the war and beyond seeks €50bn. More cash is needed for migration policies, where the EU polices borders and offers financial assistance to nearby countries if they keep refugees instead of passing them on to the EU. More money is needed for a beefed-up Strategic Technologies for Europe platform to bring together various existing programmes.

The EU has already mirrored some of the work of Joe Biden’s US administration in wanting to onshore industry, strengthen local control of technology and raw materials for new activities, and improve the EU’s performance in the wider digital sector. There is a European Chips Act. An act in support of ammunition production is being fast tracked, and an EU Secure Connectivity programme using satellites is advancing.

The EU is looking to ban exports and outbound movements of capital where it needs to do so.

The Strategic Technologies for Europe monies are accessed through the “sovereignty portal”. Projects under it will gain the Sovereignty Seal logo, a picture of a blue wax seal with the 12 yellow stars of the EU flag upon it. The EU is keen to promote its response to the US and Chinese drives for more national self-reliance and onshore security as an EU-wide phenomenon controlled by the EU institutions.

The EU flag itself was adopted by the European Community, later the European Union as a symbol of unity. The twelve golden stars stand for “unity, solidarity and harmony” and are fixed at 12, unrelated to the number of member states. What is clear is this Sovereignty Seal takes it on a further step, along with identifying stronger defences and controlling borders with the EU itself. The EU is looking to ban exports and outbound movements of capital where it needs to do so to protect intellectual property within the union and to improve EU security.

Budget boost

The EU proceeds with seven yearly budgets called Multi-Annual Financial Frameworks. The current proposals are to increase the 2021-7 version. This is also being supplemented by the €806bn Next GenerationEU fund, which borrows money on the EU’s covenant to offer loans and grants to member states and to fund EU programmes connected to the Covid-19 recovery, the green strategy, digital transition and reskilling. The EU is conscious it has fallen behind China and the US on digital development, and behind China on renewables and electric vehicles for green transition. It is hoping to use the grants and subsidies the borrowing and enlarged budget will permit to narrow some of the gaps.

The similar pattern to the US implies there will be a three-way battle of the subsidies and protections as the three main world economies of the US, China and the EU seek more secure control over digital technology, crucial raw materials for digital and green products, over renewable energy and the electric revolution.

The theme of onshoring applies around the world. It means less international trade and product competition and higher costs overall, but opportunities for companies with relevant skill and technology to hold out for great deals to entice their footloose investment to particular bidders. The EU shows its intent to expand in digital and green developments, an already crowded space pitting them against the US and China. The EU is likely to be less aggressive towards China than the US, hoping for some help from that quarter.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Guide to preserving your wealth

Discover the value of financial planning and investment advice in today’s challenging economic environment.

See more

More insights

Equity rally continues
By Garry White
Chief Investment Commentator
01 Mar 2024 | 7 min read
The 'Magnificent Seven' are not riding off into the sunset yet
By Charles Stanley
01 Mar 2024 | 8 min read
War dominating global diplomacy
By Charles Stanley
29 Feb 2024 | 5 min read
Electric cars face a long road to net zero
By Charles Stanley
28 Feb 2024 | 13 min read