As the global economy emerges from the COVID-19 pandemic with a newfound focus on nearshoring and building more resilient supply chains, market imbalances caused by the subsidization of key industries by foreign governments, especially China, have quickly become a top priority for western governments. While the EU and US can agree that preserving domestic market share and maintaining an even playing field is important, they have chosen opposing methods to combat the problem.
The EU’s response has focused on strengthening its existing regulatory framework covering the size and nature of subsidies from foreign governments, while the Biden Administration has begun a legislative campaign to provide public investment to critical industries, especially the tech sector, in order to foster domestic growth. While this legislative campaign is projected to greatly strengthen the US manufacturing industry, the increase in public investment means that US companies may soon become unintended victims of the EU’s push to update its regulation of foreign subsidies.
The US’ Legislative Campaign to Strengthen Domestic Industry
Since taking office, the Biden Administration has worked to incentivize domestic investment in the manufacturing sector and strengthen domestic supply chains. To date, the administration reports this effort has created 642,000 new manufacturing jobs in the US, while increasing the construction of new manufacturing facilities by 116%. The largest legislative contributions to this effort have been the Infrastructure, Investment, and Jobs Act, which provides billions of dollars to strengthen American infrastructure and facilitate the modernization of industrial facilities and the CHIPS and Science Act, which directs more than $50 billion in funding to help boost the American semiconductor industry. The Biden Administration has also been leading international efforts to strengthen the critical mineral supply chain through a robust interagency process initiated under President Biden’s Executive Order on Securing America’s Supply Chains back in February of 2021.
How will the US be Affected?
The new EU legislation is expected to go into effect in Mid-2023 – so US industry has some time to prepare for increased scrutiny. It is possible that the EU and the Biden administration will be able to reach consensus on the issue before the EU’s new set of regulation enter into effect, but at the moment it is hard to tell for certain whether agreement will be reached on how best to combat market disruption by foreign-backed industries.
While some US companies in heavily subsidized sectors will need to adjust before summer ’23 to avoid being targeted by the new regulations, the EU’s plan serves to benefit western industry across the board, as it targets surplus dumping and underpricing from heavily subsidized foreign industry. As the markets readjust, continued cooperation between the EU and US industry and government will be vital in making sure that US industry doesn’t move into the spotlight.