Engie, BASF, BMW, Solvay, Siemens, Volkswagen... The list of European companies ramping up industrial projects in the United States in recent months is dizzying. This is evidence, if any was needed, of the powerful airlift unleashed by the Inflation Reduction Act (IRA), which President Joe Biden signed into law on August 16, 2022 – a package worth a total of $370 billion over ten years to support the energy transition through tax credits. This came on top of a $1.2 trillion infrastructure package passed in 2021 and a $50 billion Chips Act passed in early 2023 to repatriate semiconductor production.
"We're witnessing a real industrial revival in the US, while in Europe, energy prices continue to weigh on the manufacturing sector," said Maxime Darmet, an economist at Allianz Trade. This last factor is a game changer: Detroit or New York companies pay three or four times less energy than their competitors in Frankfurt or Milan. "This explains why construction investment in the manufacturing sector has jumped spectacularly across the Atlantic, from $75 billion per year in early 2021 to $195 billion in mid-2023," said Charles-Henri Colombier, an economist with Rexecode.
The US is building factories in droves, attracting foreign manufacturers to its shores in the process. During the summer of 2022, Japan's Panasonic said it would invest $4 billion to build a battery plant in Kansas while South Korea's SK pledged $22 billion in investments in semiconductors, batteries, and biotechnology. In March this year, Volkswagen of Germany launched a $2 billion project to build a new electric SUV plant in South Carolina.
The European response to this situation has been slow to materialize and, above all, still lacks coherence. Admittedly, Europeans have realized that leaving things to the rules of the free market is not enough to build future industries, and projects are now springing up. In May, France inaugurated its first gigafactory for electric batteries under the banner of Automotive Cells Company, a joint venture between Stellantis, TotalEnergies, and Mercedes. Others have opened in Germany, Sweden, and Poland, and around 50 new plants are in the pipeline. "But these are national projects: Governments are competing to attract investment, and the European Union has relaxed the state aid framework to make this possible but is still failing to offer a clear course as powerful as the IRA," a member of the European Parliament lamented.
It is not just a question of money. "The amounts of the Inflation Reduction Act and the European Green Deal are comparable, but the European program is based mainly on regulations and grants while the US program is based on tax credits," Patrick Artus, an economist at Natixis, wrote in a note earlier this month. "We see an upturn in the US and a decline in the eurozone, which shows that the US approach is more effective than the European approach in encouraging companies to invest."
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