China Fears Recede Somewhat, As EU’s Green Deal Industrial Plan Worries About US

If you thought that the renewed push for manufacturing in the US, EU and even India for that matter, was linked to countering China’s dominance of global manufacturing, think again. The European Union has finally released details of its $270 billion Green Deal Industrial plan to spur manufacturing in the continent. In what many see as the last major effort from the ageing continent to build and reclaim some of its manufacturing strengths, the new deal is clearly hoping to prevent any poaching from the US, which has its own Inflation Reduction act to dangle before firms. In all this, India’s own PLI (production linked incentives) Schemes with their allocations of $1 to $ 3 billion seems tiny, counting more on the other advantages the country has, in terms of costs and availability of manpower.

The Green Industrial Deal

European Commission president Ursula von der Leyen announced the EU plan on Wednesday, calling the series of proposals The Green Deal Industrial Plan.

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“We know that in the next years, the shape of the economy, the net-zero economy, and where it is located will be decided,” said von der Leyen in a news conference in Brussels. “And we want to be an important part of this net-zero industry that we need globally.”

Focus On Regulation, Skills, Financing

The Green Deal Industrial Plan would, according to the European Commission, focus on simplifying regulation to help get proposed green projects running quicker, speeding up access to investment and funding, developing programs to train skilled workers in specific industries, and enhancing trade agreements in order to secure raw earth materials needed for the net-zero transition for the continent by 2050.

Its 27 member states, from the larger and wealthier Germany and France to less developed and resourced countries like Bulgaria and Romania will get to vote on the plan next week. However, the focus on firms with a focus on renewable technologies will not hide the fact that legacy sectors where the EU had enjoyed a strong ranking will also be protected. Be it the Auto sector in Germany, or the rush for Li-Ion battery manufacturing in the continent. But will that attract smaller EU members, whose vote is also crucial for passage?

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Should Chinese Manufacturing Worry?

Chinese manufacturers will not really be shaking in their boots yet, considering the vast advantages, and even leads they enjoy today in critical sectors like renewable energies, battery manufacturing and more. While facing tariff barriers in large markets like the US or EU will hurt in the short term, in the long term, there is every probability that without a sustainable model, many of the EU’s and US manufacturing plans will struggle, unless their citizens are willing to pay a much higher price for the same products.  To take just two areas, electronics and solar power. We believe customers might yet be willing to pay a little more for solar power, but the difference in electronics products might be too high to surmount for production in the EU or the US, for that matter.

The best proof of course will be seen in the firms that step up to take advantage, and how they do that. If the whole focus is on funding upfront with little to no enforceable commitment on targets without a high tariff regime, then the EU should be really worried whether they are creating domestic champions or future zombie firms.

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