A Recipe for Trade Tensions

In the neo-industrial policy era, subsidies aren’t a substitute for tariffs – they are a precursor to them.?

Case in point, the United States’ Inflation Reduction Act (IRA) shows how well-intentioned industrial policy can quickly mushroom into a sectoral trade war.?

In fewer than two years, the negative trade-related spillovers of America’s industrial policy revival have translated into an emerging tit-for-tat tariff battle among the world’s three largest economies.?

Consider this timeline:?

2022

• US Subsidy: President Joe Biden signed the IRA into law, helping to push US investment towards renewable energy goods.?

2023

• EU Subsidy: The European Commission announced a “Green Deal Industrial Plan” to ease state aid rules for renewable goods.?

2024

• US Tariffs: Biden imposed tariffs on Chinese renewable goods to ensure US production isn’t undercut by low-priced imports.
• EU Tariffs: The European Commission proposed tariffs against subsidized Chinese electric vehicle imports.?
• China Tariffs: China floats retaliatory tariffs, potentially targeting European exports of luxury goods, brandy, pork and dairy.?

With a US election on the horizon, there’s no telling how far this trade fight will go – especially now that middle-ground countries like Turkey are beginning to enter the fray.?

One thing is for certain, as best summarized by our founder Simon Evenett : “This is a recipe for trade tensions going forward.”?

Our Latest Analysis

• A Further Retreat from Trade Rules: The 2024 G7 Communiqué
• The Chilling Effect of the EU’s Anti-subsidy Investigation
• Chinese Car Tariffs Won’t Revitalise Turkey’s Auto Sector
• China's Steel Dominance: Overcapacity & Market Concentration

Chart of the Month

Over the past decade, BRICS nations consistently imposed more harmful tariffs than the G7. Recently, G7 nations have reduced their harmful tariffs from over 80 in 2018 to just 12 in the first half of 2024.

Global Trade Alert in the News

Financial Times: How not to do industrial policy (June 18)

Valor: US Dispute With China Spreads Protectionism (June 17)

Bloomberg: How G-7 Nations Hope to Counter Russia and China’s Axis of Resistance (June 13)

Le Monde: The global economy threatened by geopolitical fragmentation (June 4)

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