Is Europe Deindustrializing?
The real problem confronting European manufacturing is not the threat of factory closures. It is that, compared to the United States and China, Europe has fallen far behind in the race to accumulate, and benefit from, the cloud capital that represents the future of profit in industries like electric cars and green energy.
ATHENS – European industry is reeling under the twin threat of high energy prices and President Joe Biden’s Inflation Reduction Act (IRA) which, in essence, bribes Europe’s green industries to migrate to the United States. Are Europe’s industrial heartlands about to become rustbelts? Will Germany experience the trauma that Britain suffered as its factories closed, compelling its high-skilled manufacturing-based labor force to accept low-skill, low-productivity, low-wage jobs?
The threat is reverberating in Europe’s corridors of power. German Chancellor Olaf Scholz moved quickly to propose a new European Union fund that will offer state aid for EU companies tempted by the US subsidies to emigrate. But in view of how slowly Europe moves, especially when common debt needs to be issued to finance anything, it is questionable whether the EU subsidies will counter the US subsidies in a timely and proportionate manner.
Germany’s car industry is a good example of what is at stake. Carmakers were dealt a double blow by the return of inflation: rising fuel prices deterred customers and increased production costs. Given the substantial portion of German industry that relies on car manufacturing, commentators have begun to agonize over the country’s deindustrialization. Their angst is justified, but their analysis misses the crucial point.
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