Inflation Reduction Act: It’s no secret, the amount of money US is minting from the gas crisis in Europe by selling its LNG at sky-high spot prices. Additionally, America creates, imposes, and enforces sanctions on Russia that drive up energy costs in Europe. The high cost of production and functioning has led to European companies look for other places to relocate.
And, Biden’s ‘Inflation Reduction Act’ just appears out of nowhere at the same time when European companies are looking for better options. It tempts European companies with incentives and subsidies.
America is also capable of supplying its own energy. As a result, American supply chains are less risky than European ones. Now that Russia, which had been the source of the cheapest energy and other commodities, is being squeezed out of the European markets by the sanctions, there is less and less reason for a company to be doing anything in Europe other than selling to Europeans, who are growing more desperate to get whatever they can afford to buy.
De-industrialisation of Europe
Europe is heading towards de-industrialisation. Here is how.
The Ukraine war would end in a few months utmost. But, the wealth of Europe will flee, primarily to America leaving the European population more and more behind in the longer term. You can already see the signs as Euro has fallen to 20 years low against the dollar. And, the funny thing is, the leaders of Europe themselves worked with America to bring about this fall on them only!
Early this year, U.S. expansions were announced by German automaker Volkswagen AG and Danish jewellery business Pandora A/S. The Wall Street Journal reported last week that Tesla Inc. is delaying its plans to manufacture battery cells in Germany until it investigates its eligibility for tax incentives under the Inflation Reduction Act, which President Biden signed into law in August.
Stefan Borgas, chief executive of RHI Magnesita is looking to shift to US as he is bullish on steel demand in US. ArcelorMittal SA, located in Luxembourg, reported better-than-expected performance by an investment this year in a Texas facility that produces hot briquetted iron, a raw ingredient for steel production. ArcelorMittal SA announced it will reduce production at two German factories. Arc International, a major producer of glass, is also shutting down production lines to deal with rising energy prices.
German daily Handlelsblatt has reported how more and more German firms are increasing their headquarters in USA and leaving their operations in Europe.
Basically, due to their greater energy requirements, energy-intensive businesses like manufacturing and fertiliser production are particularly vulnerable. The recent expenditure by Washington on infrastructure, microchips, and green energy initiatives has increased its appeal too.
Re-industrialisation of US
Also, States in US are leaving no stone unturned to utilise this bright opportunity. Virginia, Georgia, and Oklahoma “displayed increasing interest” in providing these businesses with particular incentives to migrate to the country or at the very least increase their output there.
Pat Wilson, Commissioner of the Georgia Department of Economic Development, tells German companies that, “Our energy costs are low and the networks are stable. … Companies coming to Georgia [from Germany] are reducing their carbon footprint.”
Manufacturers in US have added back around 1.43 million jobs as of August this year, a net gain of 67,000 workers over pre-pandemic levels. And because the loss of employment from Europe has just started, America’s reindustrialization and economic recovery are only getting started.
Europe and South Korea coming together
Europe, though, is learning slowly but surely US impure plans. The $437 billion US health, climate, and tax measure just approved are being investigated by the European Union to see if its protectionist components violate WTO regulations.
Furthermore, even South Korea is looking forward to working with European Union and changing the law as it prohibits electric cars (EVs) built outside of North America from receiving tax credits in the United States. This will lead to an economic tussle between Europe and US. Countries will realise sooner or later that allying with US is like inviting their own doom.
But for now, the companies leaving Europe are like rats fleeing a sinking ship. They realise that Europe’s reputation as the “Hub of Industrialisation” is on its demise. It has lost its only leverage: Cheap Energy, which came from Russia. The “Inflation Reduction Act” will accelerate Europe’s de-industrialisation and ensure the permanent demise of EU’s economy.