Debates in Davos focused on the problems of green subsidies and chips

The World Economic Forum in Davos, Switzerland is a place for politicians and business leaders to voice opinions and proposals on the benefits of globalization and international cooperation.

But at this year’s meetings, no. The conference featured calls for greater localization of production as geopolitical tensions accelerate national or regional efforts to secure supplies of power and computer chips — prioritizing reliability over efficiency in an era of pandemic and the biggest war in the world. Europe since 1945.

One fact that drew attention was the disagreement over the Inflation Reduction Act of the President of the United States, Joe Biden. European leaders used Davos to air complaints about the law’s tax breaks for US companies that make parts for green energy projects, which they say will hurt European companies.

“Protectionism hinders competition and innovation and is detrimental to climate change mitigation,” said German Chancellor Olaf Scholz in a speech on the forum’s main stage.

Valdis Dombrovskis, EU trade commissioner, said that while the biggest climate investment in US history is commendable, Europe’s “concern is that it will be done in a discriminatory manner”.

Scholz and European Commission President Ursula von der Leyen said talks with the United States to find a solution were ongoing. But EU leaders stressed the need to quickly launch an investment package of their own, raising concerns that a subsidy fight could be brewing.

“Europe must do the same thing”, said the French finance minister, Bruno Le Maire, on Friday (20). “If we want to compete, we must have a very strong, effective and fast industrial policy.”

South Korean President Yoon Suk-yeol also warned that “building walls and stepping up protectionism cannot be the right solution”. Seoul has been critical of Biden’s subsidy program.

Differences about China

Who controls semiconductor technology has also been the subject of much debate, as the United States steps up efforts to curb the development of advanced products in China that will, in the future, power military weapons and artificial intelligence.

Chinese investments in German and British chip manufacturing have recently been blocked or reversed. But Europe is wary of choosing sides in the growing struggle, wanting to maintain its engagement with Beijing.

Dutch Prime Minister Mark Rutte told a panel in Davos that China is a “huge economy with huge potential and a huge innovation base”, even if there are “legitimate security concerns”.

But corporate executives were blunt in their assessment of the outcome of those discussions.

The location of the “petroleum reserves [tem] defined geopolitics over the past five decades,” Intel CEO Pat Gelsinger told CNN. “Where the technology supply chains are and where semiconductors are built is more important for the next five decades.”

‘A less efficient world’

Business leaders in Davos, impacted by the pandemic and Russia’s war in Ukraine, stressed that supply chains should be made shorter and, if possible, production should be located in countries seen as allies with shared values.

This could benefit countries like India. Representatives of Asia’s third-largest economy flocked to Davos to meet with international investors.

“The world needs resilience,” said Tata Sons chairman Natarajan Chandrasekaran, speaking of India’s ability to explore a global reconfiguration of supply chains and trade ties.

However, this reorientation will have consequences, the meeting participants acknowledged.

“We are looking at a less efficient world,” said US Trade Representative Katherine Tai. Still, she said, there is a “premium” to be paid for trust, which acts as an “insurance policy” against future complications and disruptions, from extreme weather to conflict.