Tesla stock lost more than 65% of its value to end the year at $123.18. It had started 2022 at $352.26. This fall translates into more than $720 billion of market capitalization which have evaporated in one year, a real disaster for shareholders.
Elon Musk, the whimsical and charismatic CEO of the automaker attributed this stock market disaster to macroeconomic and geopolitical factors.
“Macro conditions are difficult: energy in Europe, real estate in China & crazy Fed rates in USA,” the billionaire explained on December 8.
Macro v. Twitter
Europe is going through an energy crisis due to the war between Russia and Ukraine, which is affecting economic activity. The Federal Reserve, or Fed, has been aggressively increasing interest rates for several months to crush inflation, which is at its highest in forty years. This monetary policy raises fears of a so-called hard landing for the economy, aka recession.
If the analysis of the Techno King is valid, many individual shareholders of Tesla (TSLA) – Get Free Report believe, however, that the stock market rout of the stock is due to the actions of the CEO following his acquisition of the social network Twitter.
“Elon has now erased $600 bil of tesla wealth and still nothing from the Tesla BOD. It’s wholly unacceptable,” lamented individual shareholder Ross Gerber on December 16.
This criticism caused a back and forth between him and Musk.
“Tesla is executing better than ever! We don’t control the Federal Reserve. That is the real problem here,” Musk responded.
But Gerber insisted: “I agree the Fed sucks big time and the macro is deteriorating. But tesla is doing super well and should be outperforming its tech peers like Apple… should have at least 2x apples PE. On a bad day tesla should be $250 a share.”
Three days later, faced with the continued fall in Tesla stock, Gerber asked the board to find a new CEO.
“Tesla stock price now reflects the value of having no CEO. Great job tesla BOD – Time for a shake up,” Gerber wrote on December 20.
Tesla Impacted By Twitter
The billionaire’s critics believe that Tesla’s rout is due to his acquisition of Twitter. The tech mogul decided to buy Twitter in order to, according to him, make the platform a place for free speech. Since making the takeover bid for the social network on April 22, the tech mogul has only been focused on Twitter.
He is omnipresent on the platform, attacks his perceived enemies and regularly creates controversy. The problem is that since the $44 billion bid for Twitter, Tesla’s stock has continued to fall. Musk finalized the deal on October 27, less than two months ago. Tesla’s stock lost nearly 39% of its value during this short period.
“In the past year, we have seen Tesla’s brand lose equity across every brand value, from foundational safety to refinement,” said research-based consultancy firm Strategic Vision President, Alexander Edwards. “These problems are magnified in that battery electric vehicles (BEVs) are more often purchased by self-identified Democrats who have generally opposed Musk’s actions with Twitter. It will become more difficult to sell Tesla vehicles as the narrative of Twitter makes the vehicles seem less fun and alienates the primary buyer.”
In this context, Dan Ives, star analyst at Wedbush and one of the most optimists on Tesla, believes that it is possible to get out of this negative spiral. He just listed 10 things Musk, who said he is stepping down as CEO of Twitter, needs to do in 2023 “to change negative sentiment around the Tesla story.”
The List Of Things To Do
”Name a CEO of Twitter by the end of January,” Ives recommended. “Stop selling stock and no more boy that cried wolf or Pinocchio situation,” and “formally adopt a 10b5-1 plan so investors know there is no major selling block around the corner as Musk sold roughly $40 billion of TlSA stock the past year.”
The analyst advises Musk to “lay out conservative 2023 delivery and targets given the darker macro. The 50% growth target is not happening in our opinion, with 35%* delivery growth a more hittable and realistic goal for 2023.”
The billionaire must also focus his attention back on Tesla because Musk is “the heart and lung of Tesla and vice versa,” Ives said.
”Announce Cybertruck deliveries will hit the road by the end of 2023. Timing is key here with competition from all angles and worries production woes will push this into 2024,” Ives suggested.
In addition, the analyst recommends some changes at the Board of Directors. The new additions should have experience around tech and EV leadership.
Tesla should also announce a share buyback program to regain the market’s confidence: “With the stock at these levels a no brainer strategic move in our opinion for Tesla given its massive treasure chest,” Ives defended, adding that the company should also be more transparent around its margin structure.
Finally, Ives said that Musk should be less political because “the more political on Twitter that Musk becomes is a bad thing for selling EV cars to the masses. Its that simple and this remains a key investor concern.”
”Lay out the strategic plan for Twitter,” the analyst wrote. “Right now very simply the fear is Twitter is bleeding money with advertisers fleeing (for now) which means more losses and therefore more Musk TSLA stock sales. Once a new CEO is in place lay out the 3-year strategy of Twitter and what this can become, Super App, ‘X’, WeChat 2.0, etc.”
The billionaire has yet to react to the analyst’s advice. However, it is a safe bet that he heard the message.
Car repossessions have grown less common in the past two years, but those days may be over. Credit rating agency Fitch Ratings says repossession rates have nearly returned to pre-pandemic levels. Some analysts fear they could grow from there. For the lowest-credit consumers — those who make up the subprime loan market — the repossession rate is now higher than it was in 2019.
Repossessions fell for a combination of reasons. Lenders grew more lenient with late payments, confident that the pandemic was a temporary disruption. They knew they’d likely make more money by giving people time to adjust than by seizing back cars to sell at lower prices. Government stimulus programs also helped many Americans stay afloat.
But economic conditions have begun to change.
High monthly payments meet recession warnings
Skyrocketing car prices have left consumers with more debt for the same cars. According to the Consumer Financial Protection Bureau, loans that started in 2021 and 2022 have proven particularly hard to afford.
Loans taken out in those years performed worse than earlier loans “because those consumers had to finance cars once the supply chains were jammed and the prices started to go up,” says Ryan Kelly, acting auto finance program manager for the bureau. The average monthly payment for a new car bought last month is now a shocking $762.
“Those consumers got hit with inflation twice,” Kelly says. “First, when they had to finance a car after the prices went up, and then when they had to put gas in the car after the Russia-Ukraine conflict started.”
Jeremy Cross, the president of repossession firm International Recovery Systems, calls the last two years “a recipe for disaster.”
He explains, “Over the last two years, vehicle prices were inflated because there was no new car supply.” But Americans had saved money staying at home under lockdown, and some spent it on more expensive cars.
Now “the volume is picking up, and the remaining companies that are still performing repossessions are very busy,” Cross says. He thinks lenders are preparing for a new wave of repossessions in 2023 and 2024 because they’re beginning to offer his company new incentives “jockeying for position,” knowing that repossession firms will have more business than they can handle.
Cox Automotive analysts predict that long-term through 2025, repossessions will remain at or below historical norms. But between now and then, we could see a peak. (Cox Automotive is the parent company of Kelley Blue Book.)
Three months after taking control of Twitter, Elon Musk is adopting a less pessimistic tone about the future of the social network, which he defines as the Town Square of our time.
A few weeks ago, the billionaire was worried about the financial health of the platform, which saw an exodus of advertisers, while advertising revenue constituted 91% of Twitter’s revenue in the second quarter. The rest was subscriptions.
The company has not posted its third quarter results. As a private company now, it was delisted and therefore no longer has a legal or regulatory obligation to publish its results.
In the midst of the advertiser exodus, Musk said “the company is losing over $4M/day.” He reiterated that pessimistic view during a Twitter Spaces on December 20. He said that the platform was on track to hit $3 billion in negative cash flow before the drastic cost cuts he made. At least 5,000 of the company’s 7,500 employees, when he arrived, have been fired or left.
Like most social networks, advertising is bread and butter for Twitter, but many brands shunned the platform, waiting to see where Musk was going in terms of content management policy.
Major Changes
The billionaire, who defines himself as a “free speech absolutist,” believes that any message is acceptable on the platform as long as it does not violate the law. As a result, he reactivated most of the accounts, often extremist, banned by the old management because they violated the safeguards put in place to prevent the social network from turning into a “hellscape.”
For many advertisers, Musk’s laissez-faire approach risks spouting hate and xenophobia on the platform, a risk they don’t want to take, having their brands associated with such messaging.
Musk, however, has said there has been a sharp drop in hate speech since he took over, but some groups argue otherwise.
“There are about 500M tweets per day & billions of impressions, so hate speech impressions are
To limit the weight of advertising in Twitter’s income, Musk, who must also pay considerable interest on the debt of $13 billion that he contracted personally to finance the Twitter deal, wanted to reinvent Blue, the platform’s subscription service.
He integrated the checkmark, which means that an account has been verified, to Blue and increased the price to $7.99 per month, also adding other features. The problem is that these changes were disrupted by the appearance of numerous impostor accounts, which forced Musk to suspend new signups to Blue for many weeks. Companies, like pharmaceutical giant Eli Lilly and defense company Lockheed Martin, have seen impostor accounts posting messages impersonating them.
‘Twitter Isn’t Secure Yet’
According to Bloomberg News, the Techno King layered a significant amount of high-interest debt on Twitter’s balance sheet as part of his buyout. The company’s debt load swelled to about $13 billion — up from $1.7 billion pre-deal — and it’s now facing annual interest payments approaching $1.2 billion.
Its borrowing could get even more expensive because the interest rates on about half of that debt aren’t locked in and will rise with the market.
But Musk, who announced his resignation as CEO of Twitter, now says things aren’t so dire financially. The financial situation of the social network is improving, the billionaire has just said.
But the specter of bankruptcy is not completely ruled out.
“We’ve gotten the expenses (of Twitter) under control, so the company’s not like on the fast lane of bankruptcy anymore,” the billionaire said during the All-In Podcast on December 24. “And we’re releasing features faster than Twitter’s history, at the same time as having contained the costs and, and reduced the cost structure by a factor of 3, maybe, maybe 4.”
He subsequently reiterated this cautious optimism with a similar message posted on the platform a little later.
“Twitter isn’t secure yet, just not in the fast lane to bankruptcy,” the serial entrepreneur said. “Still much work to do.”
There’s a famous scene in the iconic 1986 film Ferris Bueller’s Day Off when his dad’s prized 1961 Ferrari 250 GT California Spyder accidentally crashes through a garage window and falls into the woods below.
Photo by CBS via Getty Images
That same car recently sold at an auction for $337,000, which seems like a steal since a 1961 California Spyder sells for millions.
But here’s the catch—it wasn’t a Ferrari at all, but rather a 1985 “replicar” designed by Modena Design and Development.
The crash car was one of three faux Ferraris built for the movie — albeit the most famous. While the red sportscar looks a lot like the original California Spyder, it doesn’t drive. Plus, the car is sort of a lemon — it was destroyed in the movie and then later rebuilt for sale. According to Motor Trend, the car has had several owners.
As Hollywood legend has it, Ferris Bueller director John Hughes wanted the 1961 Ferrari to be one of the movie’s stars. But crashing a classic car out a window was just too expensive — even by movie studio standards.
Hughes discovered Modena Design and Research, a new company that built Ferrari replicas. He commissioned three fake Ferraris in all for the movie. But the designs of the Ferraris were so accurate that Ferrari sued Modena Design and won a cease and desist order. The company went out of business in 1989.
The liberation of Kherson by Kyiv troops more than a month ago hasn’t brought peace of mind nor a feeling of security to residents of the southern Ukrainian city.
Moscow launched a missile strike on the city Saturday morning, killing at least eight people and injuring another 58, with 18 of the injured were in serious condition, according to local officials.
Ukrainian President Volodymyr Zelenskyy and other Kyiv officials published graphic pictures of burning cars and people lying in blood on the streets.
“Social networks will most likely mark these photos as ‘sensitive content.’ But this is not sensitive content — it is the real life of Ukraine and Ukrainians,” Zelenskyy wrote. “These are not military facilities. This is not a war according to the rules defined. It is terror, it is killing for the sake of intimidation and pleasure.”
Bridget Brink, the U.S. ambassador to Ukraine, called Saturday’s assault “another brutal attack by Russia on recently-liberated Kherson.”
“Truly horrific, especially on Christmas Eve,” Brink said in a tweet.
Kherson, which had a pre-war population of about 300,000, became a target for Russian troops after their withdrawal from the city and other settlements on the western bank of the Dnipro River to the eastern bank in November in an attempt to avoid being cut off by the artillery of advancing Ukrainian troops. Over the past weeks, Russian forces have attacked Kherson and other Kyiv-controlled territories around the city with artillery, rocket launchers and mortars on a daily basis, according to local authorities.
On Friday, Russian troops shelled the Kherson region 74 times, as a result of which five civilians were killed, 17 people were injured, Yaroslav Yanushevych, the regional governor, wrote on his social media.
Intensified daily bombardments put many civilians in front of a difficult choice — either to risk their lives staying in Kherson or to leave the city for safer Kyiv-controlled areas of the country.
Ukraine’s Ministry for Reintegration of Temporarily Occupied Territories said earlier this week that more than 12,000 people have been evacuated from liberated territories in the Kherson region “over the past months.”
On Friday, the ministry said that local authorities urged residents of the Ostriv district of Kherson, which remains “a zone of increased danger” due to constant enemy shelling, to leave their homes as they may be left without electricity, heat and water supply.
On January 26, the billionaire entrepreneur announced that the automotive group would reveal the locations of its new factories before the end of the year.
“2022 is the year we will be looking at factory locations to see what makes the most sense with possibly some announcement by the end of this year,” said CEO Musk during the company’s 2021 fourth-quarter earnings.
Last August, he repeated that he hoped to formally announce the location of the clean-energy carmaker’s new gigafactory later this year, in his efforts to produce 20 million vehicles annually by 2030, thus becoming the world’s largest carmaker by production volume.
These remarks have encouraged governments in many countries to court Tesla. Indonesia, South Korea, Canada and many others have dangled the incentives they offer in order to become Tesla’s new land.
Tesla in Mexico?
The company already has four car assembling factories: Austin, Texas and Fremont, California in the United States, Shanghai in China and Berlin in Germany.
The first two mainly serve the North American market and have combined production capacities of 900,000 vehicles per year, according to Tesla. They produce all models of vehicles sold by Tesla: Model 3, Model Y, Model X and Model S.
From mid-2023, the Austin plant will also produce the highly anticipated Cybertruck, in addition to the Model Y.
In Shanghai, the car manufacturer produces vehicles sold in Asia and Europe. However, since the opening of the Tesla plant in Germany in March, the European market should be mainly served by this production site. Giga Shanghai has a production capacity of over 750,000.
The German factory is the only European production site of Musk’s company. It is a car assembly site and a battery development site. It has an annual production capacity of over 250,000.
A new plant should soon be added. Tesla is expected to announce the location of its new factory this week, according to Bloomberg News citing anonymous sources close to the matter.
The carmaker has been finalizing plans to build this vehicle assembly plant in an industrial area of northeastern Mexico. The factory is to be located in Santa Catarina in Monterrey city, the capital of the Nuevo Leon state, Bloomberg News reported.
Final details are still being worked out, and the talks with the company have involved both the state government and Mexico’s foreign relations ministry.
This decision is not really a surprise. Musk was in the area in October and met with local authorities. Additionally, Tesla already has an exclusive customs lane for parts crossing the border into Texas.
GM, Ford
It also comes a few days after a victory of Mexico and Canada over the United States on the subject of vehicles shipped across borders. This means that vehicles assembled in Mexico and Canada may be eligible for the new federal tax credits included in the Inflation Reduction Act (IRA), signed last August, to encourage consumers to choose an electric vehicle when buying their future car.
Under the new law, the federal tax credit for EVs remains at $7,500. The eligibility period is from January 2023 to December 2032. The existing tax credit limitation when a car manufacturer has sold the 200,000th unit is eliminated. Tesla, General Motors and Toyota, whose cars no longer benefited from tax credits, are eligible again beginning January 1, 2023.
The tax credit of $7,500 is divided in two: $3,750 will apply if at least 40% of the minerals of the battery powering the vehicle come from the United States or a country having a free trade agreement with the United States.
The remaining $3,750 will apply if at least 50% of the battery components come from the United States or from countries with a free trade agreement with the United States. In summary, the electric vehicle you buy can benefit from the full $7,500 tax credit, half or none, depending on the battery components and minerals.
It is unclear which models will be produced at the new factory.
Tesla will not be the only automotive group manufacturing vehicles in Mexico. General Motors (GM) – Get Free Report and Ford (F) – Get Free Report are already established there.
The company didn’t respond to a request for comment.
A major overhaul of the bloc’s flagship carbon market and a brand new fund to protect vulnerable people from rising CO2 costs were agreed on by EU negotiators in the early hours of Sunday as part of a “jumbo” trilogue that started on Friday morning.
“After 30 hours of (net!) negotiation time we have an agreement about a new ETS and the creation of a social climate fund (SCF),” tweeted Esther de Lange, vice chair of the European People’s Party and a key climate lawmaker.
Touted as the cornerstone of Europe’s climate efforts, reforming the Emissions Trading System (ETS) is key to achieving the goal of slashing 55 percent of CO2 emissions by 2030 from 1990 levels.
“We just found an agreement on the biggest climate law ever negotiated in Europe,” said German MEP Peter Liese, who steered the negotiations on the bill.
As part of the hard-fought compromise, EU brokers stipulated that power generators and heavy polluters covered by the ETS will have to curb their pollution by 62 percent by the end of the decade, 1 percent more than what the European Commission had initially proposed.
Waste will be covered by the scheme from 2028, with potential derogations until 2030.
The deal also mandates that all the revenues generated by the carbon market “shall” be spent on climate action.
“That’s one of the biggest wins of the Parliament,” Liese told a briefing held shortly after the end of the talks.
Free CO2 certificates, given to industry to remain competitive against rivals from outside the bloc, will be phased out entirely by 2034 as a planned Carbon Border Adjustment Mechanism is due to enter into force from 2026 at the end of a three-year transition period. The Commission and the Council sought an end-date of 2036, while the Parliament fought for a speedier phaseout by 2032.
The border tax covers cement, aluminum, fertilizers, electric energy production, hydrogen, iron and steel.
However, negotiators stopped short of introducing rebates to protect exports, arguing they would have proven incompatible with World Trade Organization rules. Instead, the EU’s 27 nations will be granted the right to ring-fence revenues to support companies at risk of being harmed by the phaseout of free permits.
The deal also calls for a parallel carbon market to cover fossil fuels used to power cars and heat buildings from 2027 — easily one of the most controversial elements due to worries that it could increase energy poverty and unleash political turmoil if not designed in a just way.
“Germany desperately wanted the second carbon market and the inclusion of other fuels. They got it and they should celebrate,” said German MEP Peter Liese | John Thys/AFP via Getty images
To reach a deal, Parliament dropped its call for a split between commercial users and private owners — something the Commission and Council had called unworkable.
But to make it more palatable, policymakers agreed the so-called ETS2 would come with an emergency brake to be triggered in the event carbon prices per ton exceed €90 — which would cause the start to be delayed by one year. The pact also foresees that prices will be capped at €45 at least until 2030.
To help low-income households swiftly shift to cleaner forms of transport and heating so that they won’t be unfairly hit by the measure, EU policymakers signed off on a Social Climate Fund worth €86.7 billion running from 2026 until 2032.
That’s much larger than the €59 billion fund supported by the Council; 25 percent will be raised through co-financing by EU governments while a so-called “all fuels approach” covering process emissions means more CO2 permits will be sold under the scheme.
Several negotiators said the talks were made particularly tough by Germany’s foot-dragging.
“Germany desperately wanted the second carbon market and the inclusion of other fuels. They got it and they should celebrate,” said Liese, adding that, “instead of celebrating, they created problems until the last minute.”
The agreement also confirmed that the ETS will be extended to the shipping sector.
The electric vehicle manufacturer is having a dark year in the stock market. And those difficulties worsened on Dec. 13 with another sharp drop in the stock price of almost 4%.
In all, the Tesla stock lost has lost 54.2% of its value in 2022, translating into a drop in market capitalization of nearly $600 billion. Tesla (TSLA) – Get Free Report is down 60%, compared to its all-time high reached in November 2021.
Most worryingly, on Dec. 13, shares of the Model Y maker were down while the broader market was up. This stock market debacle is now causing a heated debate within the Tesla community, where fans and individual investors are divided, as they see their investments melt away day by day.
“$TSLA is now down -61.2% from its all-time high in Nov 2021, officially making this the largest drawdown in $TSLA stock history,” Sawyer Merritt, who describes himself as Tesla investor, posted on Twitter on Dec. 13. “Conversely, $TSLA shares are trading at their cheapest-level ever (from a forward earnings perspective).”
Disgruntled Shareholders
For Leo KoGuan, one of Tesla’s largest individual shareholders, the current fall is not explained by the fundamentals of the company, but more by external factors.
“No longer about fundamental of Tesla but smart and powerful negative poison gazing Tesla,” KoGuan tweeted on Dec. 13. “We are shareholders are accidental war casualties. The board is established to protect SH. The board members are smart, hopefully they will perform shock therapy to resuscitate stock price.”
Gary Black, another very vocal Tesla shareholder, believes that one such external factor is Tesla’s neglect by Elon Musk. This abandonment is due to the fact that the billionaire is focused on revamping the social network Twitter, which he acquired at a cost of $44 billion.
Since the finalization of the deal on Oct. 27, the serial entrepreneur has only talked about Twitter on a daily basis. He has also become very political and now sees himself as a vindicator.
Given that the old Twitter team had sanctioned the conservatives, Musk made it his mission to rebalance things in favor of the Republicans, in the name of free speech. But this approach frightened advertisers. Musk also notably attacked Apple (AAPL) – Get Free Report. Many experts and Tesla fans believe that these clashes are now causing damage to the Tesla brand.
“I have utmost respect for @elonmusk as a manager, leader, and visionary,” Black said on Dec. 13. “Just wish he’d hire someone to fix Twitter and focus on $TSLA as CEO with all its opportunities and challenges and which could be a $3T market cap company in 5 years.”
‘Tesla Will Be Great Long-Term’
Faced with disillusioned investors, Musk has just made a vigorous defense of Tesla, intended to appease their anger and frustration.
“Most of @elonmusk’s net worth is in $TSLA and he doesn’t seem worried. That’s because he knows Tesla is going to be ok,” one Twitter user posted on Dec. 13.
“Tesla will be great long-term,” the billionaire commented. “But doesn’t control macroeconomic tides.”
This defense is in line with his statements a few days earlier.
“Macro conditions are difficult: energy in Europe, real estate in China & crazy Fed rates in USA,” Musk said on Dec. 8.
Musk’s analysis seems to be shared by tech analyst Pierre Ferragu, who believes that Tesla’s fundamentals are solid and therefore cannot explain the stock’s fall. For Ferragu, the electric vehicle manufacturer does not have a demand problem and should continue to dominate its rivals in the long term.
“Tesla is progressively reducing prices to boost demand and absorb capacity growth. It has the cost trajectory to do so without hurting gross margins: Subsidies in the US, localized production in Europe, two giga factories ramping, absorbing fixed costs,” Ferragu said.
But for individual investors, the only way to halt Tesla’s stock slide is with a big development, which could come with the announcement of a stock buyback plan or a positive update on Q4 vehicle delivery targets.
“If the BOD of tesla made an announcement on what’s happening with tesla leadership. Someone should be interm CEO. The stock decline would end. It’s that simple. @MartinViecha $tsla,” Tesla’s investor Ross Gerber tweeted at the company.
For several months now, the richest man in the world has continued to sound the alarm, warning that the economy risks a deep recession if the central bank’s monetary policy stays on course.
While the Federal Reserve is holding its last monetary meeting of the year in the coming days, the serial entrepreneur has just made a new prediction. And like his past predictions, this one is very alarming.
The Federal Reserve has raised interest rates sharply in recent months, taking the benchmark rate from almost zero during the pandemic to a range between 3.75% and 4%, in an effort to combat inflation, which is at its highest in 40 years. But many economists say that this aggressive monetary policy will plunge the economy into a recession.
‘The Recession Will Be Greatly Amplified’
The central bank holds a two-day meeting on December 13 and 14. The policymakers are expected to raise rates by 50 basis points, following four consecutive 75 basis-point hikes.
In addition, the Fed will publish its first quarterly forecasts since September. This will provide clues into where the central bank sees the U.S. economy headed over the next few years.
The CME Group’s FedWatch continues to suggest that next week’s announcement will be a 50 basis point rate increase, taking the Fed Funds benchmark to between 4.25% and 4.5%, with a target rate between 5% and 5.25% by the spring, already largely reflected in futures trading.
Musk believes that if the Fed announces a rate hike as expected, it would be a huge mistake. The decision would plunge the economy into an even more severe recession than what is already expected, he has just warned.
“If the Fed raises rates again next week, the recession will be greatly amplified,” the billionaire said on December 9, in a message posted on Twitter.
The CEO of electric vehicle maker Tesla (TSLA) – Get Free Reportalso agrees with star investor Cathie Wood, who continues to assert that a continued rise in rates will cause deflation, a risk already indicated by Musk last September.
“The bond market seems to be signaling that the Fed is making a serious mistake,” Wood wrote on December 7. “At -80 basis points (as measured by the 10 year vs 2 year Treasury yields), the yield curve is more inverted now than at any time since the early ‘80s when double-digit inflation was entrenched.”
She added: “Typically, an inverted yield curve is pointing to a recession and/or lower than expected inflation than expected. In our view, deflation is a much bigger risk than inflation. Commodity prices and massive retail discounts are corroborating this point of view.”
To which Musk responded: “Absolutely,” on December 9.
Deflation v. Inflation
But economist Peter Schiff disagrees with the two influencers.
“Actually the yield curve reflects investor expectations that the #Fed will succeed in bringing #inflation down to 2%,” Schiff commented on Musk’s post. “Investors are wrong. The only thing the Fed will succeed in doing is making the #recession worse, which will crush the dollar and send consumer prices soaring.”
The gap between 3-month bills and 10-year notes is at around 80 basis points, the steepest since 2001 and a worrying harbinger of a recession.
According to a study from the San Francisco Federal Reserve, a sustained inverted yield curve has preceded all of the nine recessions the U.S. economy has suffered since 1955, making it an extremely accurate barometer of financial markets sentiment.
Last September, the entrepreneur warned that a jumbo interest rate increase would cause long-term deflation.
“A major Fed rate hike risks deflation,” said the CEO of SpaceX.
The consequences of deflation can be devastating for the economy because the fall in prices encourages households to postpone purchasing decisions while waiting for further price declines.
This in turn can lead to a drop in overall consumption and an increase in inventories at companies, which can no longer sell their products. In response, they reduce production and investment.
ATLANTA, Ga. (Atlanta News First) – Thomaston police are investigating after thieves allegedly stole two Ford Mustang cars totaling nearly $200,000 from the Southern Ford of Thomaston dealership.
A Ford Mustang GT500 Heritage and a blue Ford Mustang GT500 were both taken overnight Friday.
“It’s really a special car, we are one of the lucky dealers that have it,” General Manager Chip Richardson said. “The Heritage was a numbered car; less than a thousand of them were built and everything was certified on it.”
According to Thomaston Police, the thieves broke into the showroom and took not only the cars but the keys to most of the cars in the lot.
“I don’t think this was someone coming to do a joyride, they knew what they were looking for,” Chief Mike Richardson said. “And I don’t think these are going to be chopped up anywhere, they’re heading somewhere.”
The thieves disabled the security cameras, according to police.
For those that run the dealership, it’s incredibly disappointing.
“We’re a small country town and normally nothing happens,” Chip Richardson said.
Investigators are asking anyone with information to call Thomaston Police.
There is a $1,000 reward for any information that leads to an arrest.
LONDON — Three years after leaving the EU to chart its own course, Britain finds itself caught between two economic behemoths in a brewing transatlantic trade war.
In one corner sits the United States, whose Congress in August passed the Biden administration’s much-vaunted $369 billion program of green subsidies, part of the Inflation Reduction Act (IRA).
In the opposing corner is the European Union, which fears Washington’s subsidy splurge will pull investment — particularly in electric vehicles — away from Europe, hitting carmakers hard.
The EU is preparing its own retaliatory package of subsidies; Washington shows little sign of changing course. Fears of a trade war are growing fast.
Now sitting squarely outside the ring, the U.K. can only look on with horror, and quietly ask Washington to soften the blow. But there are few signs the softly-softly approach is bearing fruit. Britain now risks being clobbered by both sides.
“It’s not in the U.K.’s interest for the U.S. and EU to go down this route,” said Sam Lowe, a partner at Flint Global and expert in U.K. and EU trade policy. “Given the U.K.’s current economic position, it can’t really afford to engage in a subsidy war with both.” The British government has just unleashed a round of fiscal belt-tightening after a market rout, following months of political turmoil.
For iconic British motor brands, the row over the Biden administration’s IRA comes with real costs.
The U.S. is the second-largest destination for British-made vehicles after the EU, and the automotive sector is one of Britain’s top goods exporters.
Manufacturers like Jaguar Land Rover have warned publicly about the “very serious challenges” posed by the new U.S. law and its plan for electric vehicle tax credits aimed at boosting American industry.
Kemi on the case
U.K. Trade Secretary Kemi Badenoch has for months been privately urging top U.S. officials to soften the impact of the electric vehicle subsidies on Britain by carving out exemptions, U.K. officials said.
When Commerce Secretary Gina Raimondo visited London in early October, Badenoch pushed her to rethink the strategy. The U.K. trade chief brought that same message to Washington in a series of private meetings earlier this month, including at a sit-down with Deputy Treasury Secretary Wally Adeyemo.
Badenoch has “raised this issue on many levels,” an official from the U.K.’s Department for International Trade said, citing conversations with U.S. Ambassador to Britain Jane Hartley, with Secretary Raimondo, “and with members of the Biden administration and senior representatives of both parties.”
The Cabinet minister has also spoken out in public, telling the pro-free market Cato Institute in Washington earlier this month that “the substantial new tax credits for electric cars not only bar vehicles made in the U.K. from the U.S. market, but also affect vehicles made in the U.S. by U.K. manufacturers.”
U.S. Secretary of Commerce Gina Raimondo | Mandel Ngan/AFP via Getty Images
Badenoch’s comments echo concerns raised by both British automotive lobby group the Society of Motor Manufacturers and Traders (SMMT), and by Jaguar Land Rover, in comments filed with the U.S. Treasury Department.
The SMMT warned that Biden’s green vehicle package has several “elements of concern that risk creating an uneven competitive environment, with U.K.-based manufacturers and suppliers potentially penalised.” The lobby group is taking aim at the credit scheme’s requirement for green vehicles to be built in North America, with significant subsidies available only if critical minerals are sourced from the U.S. or a U.S. ally.
In response to Washington’s plans, the EU is preparing what could amount to billions in subsidies for its own industries hit by the U.S. law, which also offers tax breaks to boost American green businesses such as solar panel manufacturers. Britain faces being squeezed in both markets, while lacking any say in whatever response Brussels decides.
Protectionism that impacts like-minded allies “isn’t the answer to the geopolitical challenges we face,” the British trade department official warned, adding “there is a serious risk” the law disrupts “vital” global supply chains of batteries and electric vehicles.
The conversations Badenoch had this month in Washington were “reassuring,” the official added. “But it’s for them to address and find solutions.”
‘Ton of work to do’
Yet others believe Badenoch will have a hard time getting her colleagues in the U.S. — now cooling on a much-touted bilateral trade deal — to take action. “The U.S. is minimally focused on how any of their policies are going to impact the U.K.,” admitted a U.S.-based representative of a major business group.
While Britain and the U.S. are “very close allies”, they added, those in Washington “just don’t really view the U.K. as an interesting trade partner and market right now.” The U.S. is more focused, they noted, on pushing back against China, meaning Badenoch has “a ton of work to do” getting the administration to soften the IRA.
Nevertheless the U.S. is still working out how its law will actually be implemented, the business figure said, and is assembling a working group on how the IRA impacts trade allies. This has the potential, they added, to “alleviate a lot of the concerns coming out of the U.K.”
Late Tuesday evening, the SMMT called on the British government to provide greater domestic support for the sector as it prepares to ramp up its own electric vehicle production. The group wants an extension past April on domestic support for firms’ energy costs; a boost to government investment in green energy sources; and a speedier national rollout of charging infrastructure and staff training.
In the meantime, Britain’s options appear limited.
Newly manufactured Land Rover and Range Rover vehicles parked and waiting to be loaded for export | Paul Ellis/AFP via Getty Images
The U.K. “could consider legal action” and haul the U.S. before the World Trade Organization or challenge the EU through provisions in the post-Brexit Trade and Cooperation Agreement, said Lowe of consultancy Flint. “But — to be blunt — neither of them care what we have to say.”
Anna Jerzewska, a trade advisor and associate fellow at the UK Trade Policy Observatory, suggested pressing ahead “with your own domestic policy and efforts to support strategic industries is perhaps more important” than complaining about foreign subsidy schemes. But she noted that after a “chaotic” political period, Britain is “likely to take longer to respond to external changes and challenges.”
And in truth, Britain “can’t afford to out-subsidize the U.S. and EU,” said David Henig, a trade expert with the European Centre For International Political Economy think tank.
Outside the EU, Britain could work to rally allies such as Japan and South Korea who are also unhappy with the Biden administration’s protectionist measures, he noted. “But I don’t think we’re in that position,” Henig said, as it would take a concerted diplomatic effort, and the U.K.’s automotive sector would “have to be well positioned” in the first place, not struggling as it is. He predicted London’s lobbying in Washington and Brussels is “not going to get anywhere.”
BERLIN — On a balmy September evening last year, an Azeri man carrying a Russian passport crossed the border from northern Cyprus into southern Cyprus. He traveled light: a pistol, a handful of bullets and a silencer.
It was going to be the perfect hit job.
Then, just as the man was about to step into a rental car and carry out his mission — which prosecutors say was to gun down five Jewish businessmen, including an Israeli billionaire — the police surrounded him.
The failed attack was just one of at least a dozen in Europe in recent years, some successful, others not, that have involved what security officials call “soft” targets, involving murder, abduction, or both. The operations were broadly similar in conception, typically relying on local hired guns. The most significant connection, intelligence officials say, is that the attacks were commissioned by the same contractor: the Islamic Republic of Iran.
In Cyprus, authorities believe Iran, which blames Israel for a series of assassinations of nuclear specialists working on the Iranian nuclear program, was trying to signal that it could strike back where Israel least expects it.
“This is a regime that bases its rule on intimidation and violence and espouses violence as a legitimate measure,” David Barnea, the head of Israel’s Mossad intelligence agency, said in rare public remarks in September, describing what he said was a recent uptick in violent plots. “It is not spontaneous. It is planned, systematic, state terrorism — strategic terrorism.”
He left out one important detail: It’s working.
That success has come in large part because Europe — the staging ground for most Iranian operations in recent years — has been afraid to make Tehran pay. Since 2015, Iran has carried out about a dozen operations in Europe, killing at least three people and abducting several others, security officials say.
“The Europeans have not just been soft on the Islamic Republic, they’ve been cooperating with them, working with them, legitimizing the killers,” Masih Alinejad, the Iranian-American author and women’s rights activist said, highlighting the continuing willingness of European heads of state to meet with Iran’s leaders.
Alinejad, one of the most outspoken critics of the regime, understands better than most just how far Iran’s leadership is willing to go after narrowly escaping both a kidnapping and assassination attempt.
“If the Islamic Republic doesn’t receive any punishment, is there any reason for them to stop taking hostages or kidnapping or killing?” she said, and then answered: “No.”
Method of first resort
Assassination has been the sharpest instrument in the policy toolbox ever since Brutus and his co-conspirators stabbed Julius Caesar repeatedly. Over the millennia, it’s also proved risky, often triggering disastrous unintended consequences (see the Roman Empire after Caesar’s killing or Europe after the assassination of Archduke Franz Ferdinand in Sarajevo).
And yet, for both rogue states like Iran, Russia and North Korea, and democracies such as the United States and Israel — the attraction of solving a problem by removing it often proves irresistible.
Even so, there’s a fundamental difference between the two spheres: In the West, assassination remains a last resort (think Osama bin Laden); in authoritarian states, it’s the first (who can forget the 2017 assassination by nerve agent of Kim Jong-nam, the playboy half-brother of North Korean dictator Kim Jong-un, upon his arrival in Kuala Lumpur?). For rogue states, even if the murder plots are thwarted, the regimes still win by instilling fear in their enemies’ hearts and minds.
That helps explain the recent frequency. Over the course of a few months last year, Iran undertook a flurry of attacks from Latin America to Africa. In Colombia, police arrested two men in Bogotá on suspicion they were plotting to assassinate a group of Americans and a former Israeli intelligence officer for $100,000; a similar scene played out in Africa, as authorities in Tanzania, Ghana and Senegal arrested five men on suspicion they were planning attacks on Israeli targets, including tourists on safari; in February of this year, Turkish police disrupted an intricate Iranian plot to kill a 75-year-old Turkish-Israeli who owns a local aerospace company; and in November, authorities in Georgia said they foiled a plan hatched by Iran’s Quds Force to murder a 62-year-old Israeli-Georgian businessman in Tbilisi.
Whether such operations succeed or not, the countries behind them can be sure of one thing: They won’t be made to pay for trying. Over the years, the Russian and Iranian regimes have eliminated countless dissidents, traitors and assorted other enemies (real and perceived) on the streets of Paris, Berlin and even Washington, often in broad daylight. Others have been quietly abducted and sent home, where they faced sham trials and were then hanged for treason.
While there’s no shortage of criticism in the West in the wake of these crimes, there are rarely real consequences. That’s especially true in Europe, where leaders have looked the other way in the face of a variety of abuses in the hopes of reviving a deal to rein in Tehran’s nuclear weapons program and renewing business ties.
Unlike the U.S. and Israel, which have taken a hard line on Iran ever since the mullahs came to power in 1979, Europe has been more open to the regime. Many EU officials make no secret of their ennui with America’s hard-line stance vis-à-vis Iran.
“Iran wants to wipe out Israel, nothing new about that,” the EU foreign policy chief Josep Borrell told POLITICO in 2019 when he was still Spanish foreign minister. “You have to live with it.”
History of assassinations
There’s also nothing new about Iran’s love of assassination.
Indeed, many scholars trace the word “assassin” to Hasan-i Sabbah, a 12th-century Persian missionary who founded the “Order of Assassins,” a brutal force known for quietly eliminating adversaries.
Hasan’s spirit lived on in the Ayatollah Ruhollah Khomeini, the hardline cleric who led Iran’s Islamic revolution and took power in 1979. One of his first victims as supreme leader was Shahriar Shafiq, a former captain in the Iranian navy and the nephew of the country’s exiled shah. He was shot twice in the head in December 1979 by a masked gunman outside his mother’s home on Rue Pergolèse in Paris’ fashionable 16th arrondissement.
In the years that followed, Iranian death squads took out members and supporters of the shah and other opponents across Europe, from France to Sweden, Germany, Switzerland and Austria. In most instances, the culprits were never caught. Not that the authorities really needed to look.
In 1989, for example, Abdul Rahman Ghassemlou, a leader of Iran’s Kurdish minority who supported autonomy for his people, was gunned down along with two associates by Iranian assassins in an apartment in Vienna.
The gunmen took refuge in the Iranian embassy. They were allowed to leave Austria after Iran’s ambassador to Vienna hinted to the government that Austrians in his country might be in danger if the killers were arrested. One of the men alleged to have participated in the Vienna operation would later become one of his country’s most prominent figures: Mahmoud Ahmadinejad, Iran’s president from 2005 until 2013.
Not even the bad publicity surrounding that case tempered the regime’s killing spree. In the years that followed, the body count only increased. Some of the murders were intentionally gruesome in order to send a clear message.
Fereydoun Farrokhzad, for example, a dissident Iranian popstar who found exile in Germany, was killed in his home in Bonn in 1992. The killers cut off his genitals, his tongue and beheaded him.
His slaying was just one of dozens in what came to be known as Iran’s “chain murders,” a decade-long killing spree in which the government targeted artists and dissidents at home and abroad. Public outcry over the murder of a trio of prominent writers in 1998, including a husband and wife, forced the regime hard-liners behind the killings to retreat. But only for a time.
Illustration by Joan Wong for POLITICO
Then, as now, the dictatorship’s rationale for such killings has been to protect itself.
“The highest priority of the Iranian regime is internal stability,” a Western intelligence source said. “The regime views its opponents inside and outside Iran as a significant threat to this stability.”
Much of that paranoia is rooted in the Islamic Republic’s own history. Before returning to Iran in 1979, Khomeini spent nearly 15 years in exile, including in Paris, an experience that etched the power of exile into the Islamic Republic’s mythology. In other words, if Khomeini managed to lead a revolution from abroad, the regime’s enemies could too.
Bargaining chips
Given Europe’s proximity to Iran, the presence of many Iranian exiles there and the often-magnanimous view of some EU governments toward Tehran, Europe is a natural staging ground for the Islamic Republic’s terror.
The regime’s intelligence service, known as MOIS, has built operational networks across the Continent trained to abduct and murder through a variety of means, Western intelligence officials say.
As anti-regime protests have erupted in Iran with increasing regularity since 2009, the pace of foreign operations aimed at eliminating those the regime accuses of stoking the unrest has increased.
While several of the smaller-scale assassinations — such as the 2015 hit in the Netherlands on Iranian exile Mohammad-Reza Kolahi — have succeeded, Tehran’s more ambitious operations have gone awry.
The most prominent example involved a 2018 plot to blow up the annual Paris meeting of the National Council of Resistance of Iran, an alliance of exile groups seeking to oust the regime. Among those attending the gathering, which attracted tens of thousands, was Rudy Giuliani, the former New York mayor and then-U.S. President Donald Trump’s lawyer.
Following a tip from American intelligence, European authorities foiled the plot, arresting six, including a Vienna-based Iranian diplomat who delivered a detonation device and bombmaking equipment to an Iranian couple tasked with carrying out an attack on the rally. Authorities observed the handover at a Pizza Hut in Luxembourg and subsequently arrested the diplomat, Assadollah Assadi, on the German autobahn as he sped back to Vienna, where he enjoyed diplomatic immunity.
Assadi was convicted on terror charges in Belgium last year and sentenced to 20 years is prison. He may not even serve two.
The diplomat’s conviction marked the first time an Iranian operative had been held accountable for his actions by a European court since the Islamic revolution. But Belgium’s courage didn’t last long.
In February, Iran arrested Belgian aid worker Olivier Vandecasteele on trumped-up espionage charges and placed him into solitary confinement at the infamous Evin prison in Tehran. Vandecasteele headed the Iran office of the Norwegian Refugee Council, an aid group.
Following reports that Vandecasteele’s health was deteriorating and tearful public pleas from his family, the Belgian government — ignoring warnings from Washington and other governments that it was inviting further kidnappings — relented and laid the groundwork for an exchange to trade Assadi for Vandecasteele. The swap could happen any day.
“Right now, French, Swedish, German, U.K., U.S., Belgian citizens, all innocents, are in Iranian prisons,” said Alinejad, the Iranian women’s rights campaigner.
“They are being used like bargaining chips,” she said. “It works.”
Amateur hour
Even so, the messiness surrounding the Assadi case might explain why most of Iran’s recent operations have been carried out by small-time criminals who usually have no idea who they’re working for. The crew in last year’s Cyprus attack, for example, included several Pakistani delivery boys. While that gives Iran plausible deniability if the perpetrators get caught, it also increases the likelihood that the operations will fail.
“It’s very amateur, but an amateur can be difficult to trace,” one intelligence official said. “They’re also dispensable. They get caught, no one cares.”
Iranian intelligence has had more success in luring dissidents away from Europe to friendly third countries where they are arrested and then sent back to Iran. That’s what happened to Ruhollah Zam, a journalist critical of the regime who had been living in Paris. The circumstances surrounding his abduction remain murky, but what is known is that someone convinced him to travel to Iraq in 2019, where he was arrested and extradited to Iran. He was convicted for agitating against the regime and hanged in December of 2020.
One could be forgiven for thinking that negotiations between Iran and world powers over renewing its dormant nuclear accord (which offered Tehran sanctions relief in return for supervision of its nuclear program) would have tamed its covert killing program. In fact, the opposite occurred.
In July of 2021, U.S. authorities exposed a plot by Iranian operatives to kidnap Alinejad from her home in Brooklyn as part of an elaborate plan that involved taking her by speedboat to a tanker in New York Harbor before spiriting her off to Venezuela, an Iranian ally, and then on to the Islamic Republic.
A year later, police disrupted what the FBI believed was an attempt to assassinate Alinejad, arresting a man with an assault rifle and more than 60 rounds of ammunition who had knocked on her door.
American authorities also say Tehran planned to avenge the assassination of General Qassem Soleimani, the head of its feared paramilitary Quds Force who was the target of a U.S. drone strike in 2020, by seeking to kill former National Security Adviser John Bolton and Mike Pompeo, the former Secretary of State, among other officials.
Through it all, neither the U.S. nor Europe gave up hope for a nuclear deal.
“From the point of view of the Iranians, this is proof that it is possible to separate and maintain a civilized discourse on the nuclear agreement with a deceptive Western appearance, on the one hand, and on the other hand, to plan terrorist acts against senior American officials and citizens,” Barnea, the Mossad chief said. “This artificial separation will continue for as long as the world allows it to.”
Kremlin’s killings
Some hope the growing outrage in Western societies over Iran’s crackdown on peaceful protestors could be the spark that convinces Europe to get tough on Iran. But Europe’s handling of its other favorite rogue actor — Russia — suggests otherwise.
Long before Russia’s annexation of Crimea, much less its all-out war against Ukraine, Moscow, similar to Iran, undertook an aggressive campaign against its enemies abroad and made little effort to hide it.
Russian police investigators stand near the body of killed Russian opposition leader and former Deputy Prime Minister Boris Nemtsov | Sasha Mordovets/Getty Images
The most prominent victim was Alexander Litvinenko. A former KGB officer like Vladimir Putin, Litvinenko had defected to the U.K., where he joined other exiles opposed to Putin. In 2006, he was poisoned in London by Russian intelligence with polonium-210, a radioactive isotope that investigators concluded was mixed into his tea. The daring operation signaled Moscow’s return to the Soviet-era practice of artful assassination.
Litvinenko died a painful death within weeks, but not before he blamed Putin for killing him, calling the Russian president “barbaric.”
“You may succeed in silencing me, but that silence comes at a price,” Litvinenko said from his deathbed.
In the end, however, the only one who really paid a price was Litvinenko. Putin continued as before and despite deep tensions in the U.K.’s relationship with Russia over the assassination, it did nothing to halt the transformation of the British capital into what has come to be known as “Londongrad,” a playground and second home for Russia’s Kremlin-backed oligarchs, who critics say use the British financial and legal systems to hide and launder their money.
Litvinenko’s killing was remarkable both for its brutality and audacity. If Putin was willing to take out an enemy on British soil with a radioactive element, what else was he capable of?
It didn’t take long to find out. In the months and years that followed, the bodies started to pile up. Critical journalists, political opponents and irksome oligarchs in the prime of life began dropping like flies.
Europe didn’t blink.
Angela Merkel, then German chancellor, visited Putin in his vacation residence in Sochi just weeks after the murders of Litvinenko and investigative journalist Anna Politkovskaya and said … nothing.
Even after there was no denying Putin’s campaign to eradicate anyone who challenged him, European leaders kept coming in the hope of deepening economic ties.
Neither the assassination of prominent Putin critic Boris Nemtsov just steps away from the Kremlin in 2015, nor the poisoning of a KGB defector and his daughter in the U.K. in 2018 and of opposition leader Alexei Navalny in 2020 with nerve agents disabused European leaders of the notion that Putin was someone they could do business with and, more importantly, control.
‘Anything can happen’
Just how comfortable Russia felt about using Europe as a killing field became clear in the summer of 2019. Around noon on a sunny August day, a Russian assassin approached Zelimkhan Khangoshvili, a Chechen with Georgian nationality, and shot him twice in the head with a 9mm pistol. The murder took place in a park located just a few hundred meters from Germany’s interior ministry and several witnesses saw the killer flee. He was nabbed within minutes as he was changing his clothes and trying to dispose of his weapon and bike in a nearby canal.
It later emerged that Khangoshvili, a Chechen fighter who had sought asylum in Germany, was on a Russian kill list. Russian authorities considered him a terrorist and accused him of participating in a 2010 attack on the Moscow subway that killed nearly 40 people.
In December of 2019, Putin denied involvement in Khangoshvili’s killing. Sort of. Sitting next to French President Emmanuel Macron, Merkel and Ukrainian President Volodymyr Zelenskyy following a round of talks aimed at resolving the conflict in Ukraine, the Russian referred to him as a “very barbaric man with blood on his hands.”
“I don’t know what happened to him,” Putin said. “Those are opaque criminal structures where anything can happen.”
Early on October 19 of last year, Berlin police discovered a dead man on the sidewalk outside the Russian embassy. He was identified as Kirill Zhalo, a junior diplomat at the embassy. He was also the son of General Major Alexey Zhalo, the deputy head of a covert division in Russia’s FSB security service in Moscow that ordered Khangoshvili’s killing. Western intelligence officials believe that Kirill Zhalo, who arrived in Berlin just weeks before the hit on the Chechen, was involved in the operation and was held responsible for its exposure.
The Russian embassy called his death “a tragic accident,” suggesting he had committed suicide by jumping out of a window. Russia refused to allow German authorities to perform an autopsy (such permission is required under diplomatic protocols) and sent his body back to Moscow.
Less than two months later, the Russian hitman who killed Khangoshvili, was convicted of murder and sentenced to life in prison. Russia recently tried to negotiate his release, floating the possibility of exchanging American basketball player Brittney Griner and another U.S. citizen they have in custody. Washington rejected the idea.
The war in Ukraine offers profound lessons about the inherent risks of coddling dictators.
Though Germany, with its thirst for Russian gas, is often criticized in that regard, it was far from alone in Europe. Europe’s insistence on giving Putin the benefit of the doubt over the years in the face of his crimes convinced him that he would face few consequences in the West for his invasion of Ukraine. That’s turned out to be wrong; but who could blame the Russian leader for thinking it?
Iran presents Europe with an opportunity to learn from that history and confront Tehran before it’s too late. But there are few signs it’s prepared to really get tough. EU officials say they are “considering” following Washington’s lead and designating the Islamic Revolutionary Guard Corps, a vast military organization that also controls much of the Iran’s economy, as a terror organization. Last week, German Foreign Minister Annalena Baerbock spearheaded an effort at the United Nations to launch a formal investigation into Iran’s brutal crackdown against the ongoing protests in the country.
Yet even as the regime in Tehran snuffs out enemies and races to fulfil its goal of building both nuclear weapons and missiles that can reach any point on the Continent, some EU leaders appear blind to the wider context as they pursue the elusive renewal of the nuclear accord.
“It is still there,” Borrell said recently of the deal he has taken a leading role in trying to resurrect. “It has nothing to do with other issues, which certainly concern us.”
The transatlantic reset between Brussels and Washington is on life support.
After four years of discord and disruption under Donald Trump, hopes were high that Joe Biden’s presidency would usher in a new era of cooperation between Europe and the U.S. after he declared: “America is back.”
But when senior officials from both sides meet in Washington on Monday for a twice-yearly summit on technology and trade, the mood will be gloomier than at any time since Trump left office.
The European Union is up in arms over Biden’s plans for hefty subsidies for made-in-America electric cars, claiming these payments, which partly kick in from January 1, are nothing more than outright trade protectionism.
At the same time, the U.S. is increasingly frustrated the 27-country bloc won’t be more aggressive in pushing back against China, accusing some European governments of caving in to Beijing’s economic might.
Those frictions are expected to overshadow the so-called EU-U.S. Trade and Technology Council (TTC) summit this week. At a time when the Western alliance is seeking to maintain a show of unity and strength in the face of Russian aggression and Chinese authoritarianism, the geopolitical stakes are high.
Biden may have helped matters last Thursday, during a joint press conference with French President Emmanuel Macron, by saying he believed the two sides can still resolve some of the concerns the EU has raised.
“We’re going to continue to create manufacturing jobs in America but not at the expense of Europe,” Biden said. “We can work out some of the differences that exist, I’m confident.”
But, as ever, the details will be crucial.
It is unclear what Biden can do to stop his Buy American subsidies from hurting European car-markers, for example, many of which come from powerful member countries like France and Germany. The TTC summit offers a crucial early opportunity for the two sides to begin to rebuild trust and start to deliver on Biden’s warm rhetoric.
Judging by the TTC’s record so far, those attending, who will include U.S. Secretary of State Antony Blinken, will have their work cut out.
More than 20 officials, policymakers and industry and society groups involved in the summit told POLITICO that the lofty expectations for the TTC have yet to deliver concrete results. Almost all of the individuals spoke on the condition of anonymity to discuss sensitive internal deliberations.
U.S. Secretary of State Antony Blinken will be attending the TTC | Sean Gallup/Getty Images
Some officials privately accused their counterparts of broken promises, particularly on trade. Others are frustrated at a lack of progress in 10 working groups on topics like helping small businesses to digitize and tackling climate change.
“With these kinds of allies, who needs enemies?” said one EU trade diplomat when asked about tensions around upcoming U.S. electric car subsidies. A senior U.S. official working on the summit hit back: “We need the Europeans to play ball on China. So far, we haven’t had much luck.”
Much of the EU-U.S. friction is down to three letters: IRA.
Biden’s Inflation Reduction Act, which provides subsidies to “Buy American” when it comes to purchasing electric vehicles, has infuriated officials in Brussels who see it as undermining the multilateral trading system and a direct threat to the bloc’s rival car industry.
“The expectation the TTC was established to provide a forum for precisely these advanced exchanges with a view to preventing trade frictions before they arise appears to have been severely frustrated,” said David Kleimann, a trade expert at the Bruegel think tank in Brussels.
Biden’s room for flexibility is limited. The context for the subsidies and tax breaks is his desire to make good on his promise to create more manufacturing jobs ahead of an expected re-election run in 2024. The U.S. itself is hovering on the edge of a possible recession.
In addition, the U.S. trade deficit with the EU hit a record $218 billion in 2021, second only to the U.S. trade deficit with China. The U.S. also ran an auto trade deficit of about $22 billion with European countries, with Germany accounting for the largest share of that.
Washington has few, if any, meaningful policy levers at its disposal to calm European anger. During a recent visit to the EU, Katherine Tai, the U.S. trade representative, urged European countries to pass their own subsidies to jumpstart Europe’s electric car production, according to three officials with knowledge of those discussions.
“It risks being the elephant in the room,” said Emily Benson, a senior fellow at the Center for Strategic and International Studies, a Washington-based think tank, when asked about the electric car dispute.
After a push from Brussels, there were increasing signs on Friday that the TTC could still play a role. In the latest version of the TTC’s draft declaration, obtained by POLITICO, both sides commit to addressing the European concerns over Biden’s subsidies, including via the Trade and Tech Council. Again, though, there was no detail on how Washington could resolve the issue.
Politicians across Europe are already drawing up plans to fight back against Biden’s subsidies. That may include taking the matter to the World Trade Organization, hitting the U.S. with retaliatory tariffs or passing a “Buy European Act” that would nudge EU consumers and businesses to buy locally made goods and components.
Officials and business leaders pose for a photo during the TTC in September 2021 | Pool photo by Rebecca Droke/AFP via Getty Images
Privately, Washington has not been in the mood to give ground. Speaking to POLITICO before Biden met Macron, five U.S. policymakers said the IRA was not aimed at alienating allies, stressing that the green subsidies fit the very climate change goals that Europe has long called on America to adopt.
“There’s just a huge amount to be done and more frankly to be done than the market would provide for on its own,” said a senior White House official, who was not authorized to speak on the record. “We think the Inflation Reduction Act is reflective of that type of step, but we also think there is a space here for Europe and others, frankly, to take similar steps.”
China tensions
Senior politicians attending the summit are expected to play down tensions this week when they announce a series of joint EU-U.S. projects.
These include funds for two telecommunications projects in Jamaica and Kenya and the announcement of new rules for how the emerging technology of so-called trustworthy artificial intelligence can develop. There’s also expected to be a plan for more coordination to highlight potential blockages in semiconductor supply chains, according to the draft summit statement obtained by POLITICO.
Yet even on an issue like microchips — where both Washington and Brussels have earmarked tens of billions of euros to subsidize local production — geopolitics intervenes.
For months, U.S. officials have pushed hard for their European counterparts to agree to export controls to stop high-end semiconductor manufacturing equipment being sent to China, according to four officials with knowledge of those discussions.
Washington already passed legislation to stop Chinese companies from using such American-made hardware. The White House had been eager for the European Commission to back similar export controls, particularly as the Dutch firm ASML produced equipment crucial for high-end chipmaking worldwide.
Yet EU officials preparing for the TTC meeting said such requests had never been made formally to Brussels. The draft summit communiqué makes just a passing reference to China and threats from so-called non-market economies.
Unlike the U.S., the EU remains divided on how to approach Beijing as some countries like Germany have long-standing economic ties with Chinese businesses that they are reluctant to give up. Without a consensus among EU governments, Brussels has little to offer Washington to help its anti-China push.
“In theory, the TTC is not about China, but in practice, every discussion with the U.S. is,” said one senior EU official, speaking on the condition of anonymity. “If we talk with Katherine Tai about Burger King, it has an anti-China effect.”
Gavin Bade, Clea Caulcutt, Samuel Stolton and Camille Gijs contributed reporting.
The “KIA” in any other image would probably be less confusing.
Courtesy companyThe new Kia logo, which some say looks too much like
In January 2021, car manufacturer Kia redesigned its formerly recognizable circular “KIA” logo, which it had in some format since 1994, to a more stylized depiction of the company’s name.
But the change has absolutely befuddled potential customers, according to The Drive. And it’s not a small number of people, either.
Some 30,000 people have been googling “KN car” every month since the logo’s debut, according to the outlet, noting the increase began when the Kia Stinger hit the market bearing the new logo.
“I just want to emphasize how many people 30,000 actually are. That’s 360,000 people every year, 986 people per day, 41 people per hour, or one person every other minute,” the outlet added.
The new logo was also panned at the time of its release by some industry outlets. But other experts disagree.
Ed Kim,president and chief analyst at research and consulting firm, AutoPacific, told Entrepreneur the search traffic from Kia’s confusing logo might be working in their favor.
“If [the new logo] is noticeable enough to people they’re Googling ‘What is this logo?’ I would make the case the logo is actually doing its job,” he told Entrepreneur.
Twitter user Ashwinn Krishnaswamy first spotted the Googling trend.
Kia was founded in 1944 and is owned by Hyundai Motor Group, which is based in South Korea. After investing more in the cars., the company mounted a remarkable rebrand, going from an entry-level car in the 2000s to now topping vehicle quality studies, Popular Mechanic noted.
The number of Kia and Hyundai vehicles sold in the U.S. has gone up about 61% since 2010, CNBC noted and the company has sold over 1.4 million cars in the U.S. in 2021, per industry data from Cox Automotive, the outlet added.
The company introduced the new logo in January 2021, saying it “[declared] the brand’s future transformation.”
“The rhythmical, unbroken line of the logo conveys Kia’s commitment to bringing moments of inspiration, while its symmetry demonstrates confidence,” the press release added.
The old Kia logo, Courtesy company
But it appears the new logo isn’t resonating with every customer. As The Drive notes, there are multiple Reddit threads on the issue.
In the Reddit forum “R/what is this car” (which is for any “unknown vehicle you’d like identified”) someone posted a Kia with the new logo, and someone wrote, “It’s their new logo.”
“Thanks! I don’t think I’m a fan of it,” the original poster responded. Some users did say they liked it.
Two top-voted comments in another Reddit thread add: “hate it. Every time I see it, I see KN, not Kia,” and, in response, “Same. I had to google KN car logo to figure out what it was. I thought it was some new.” Others in Krishnaswamy’s Twitter mentions have disagreed.
I have to disagree. It’s a beautiful logo. No one thinks there’s a car called KN.
Kim, for his part, added that he thought the logo change made sense in the context of Kia’s shift to a reliable car and gained more “pricing power,” particularly with the release of the highly-rated Telluride car model in 2019 for the 2020 market. The 2023 Telluride starts at $35,690.
“I do think the logo does fit hand in hand with where the Kia brand is now and where it’s going,” Kim said. “The cars have gotten a lot more appealing and even a lot more upscale,” he added.
The company did not respond to a request for comment.
Car buyers just can’t catch a break these days. Vehicle prices climbed sharply during the pandemic, and now the cost of financing a new set of wheels is going up.
Even if prices ease, interest rates on car loans likely will climb higher, at least for a while, making this an inopportune time to replace a vehicle, financing experts say.
Nine months after invading Ukraine, Vladimir Putin is beginning to fracture the West.
Top European officials are furious with Joe Biden’s administration and now accuse the Americans of making a fortune from the war, while EU countries suffer.
“The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” one senior official told POLITICO.
The explosive comments — backed in public and private by officials, diplomats and ministers elsewhere — follow mounting anger in Europe over American subsidies that threaten to wreck European industry. The Kremlin is likely to welcome the poisoning of the atmosphere among Western allies.
“We are really at a historic juncture,” the senior EU official said, arguing that the double hit of trade disruption from U.S. subsidies and high energy prices risks turning public opinion against both the war effort and the transatlantic alliance. “America needs to realize that public opinion is shifting in many EU countries.”
The EU’s chief diplomat Josep Borrell called on Washington to respond to European concerns. “Americans — our friends — take decisions which have an economic impact on us,” he said in an interview with POLITICO.
The biggest point of tension in recent weeks has been Biden’s green subsidies and taxes that Brussels says unfairly tilt trade away from the EU and threaten to destroy European industries. Despite formal objections from Europe, Washington has so far shown no sign of backing down.
At the same time, the disruption caused by Putin’s invasion of Ukraine is tipping European economies into recession, with inflation rocketing and a devastating squeeze on energy supplies threatening blackouts and rationing this winter.
As they attempt to reduce their reliance on Russian energy, EU countries are turning to gas from the U.S. instead — but the price Europeans pay is almost four times as high as the same fuel costs in America. Then there’s the likely surge in orders for American-made military kit as European armies run short after sending weapons to Ukraine.
It’s all got too much for top officials in Brussels and other EU capitals. French President Emmanuel Macron said high U.S. gas prices were not “friendly” and Germany’s economy minister has called on Washington to show more “solidarity” and help reduce energy costs.
Ministers and diplomats based elsewhere in the bloc voiced frustration at the way Biden’s government simply ignores the impact of its domestic economic policies on European allies.
When EU leaders tackled Biden over high U.S. gas prices at the G20 meeting in Bali last week, the American president simply seemed unaware of the issue, according to the senior official quoted above. Other EU officials and diplomats agreed that American ignorance about the consequences for Europe was a major problem.
“The Europeans are discernibly frustrated about the lack of prior information and consultation,” said David Kleimann of the Bruegel think tank.
Officials on both sides of the Atlantic recognize the risks that the increasingly toxic atmosphere will have for the Western alliance. The bickering is exactly what Putin would wish for, EU and U.S. diplomats agreed.
The growing dispute over Biden’s Inflation Reduction Act (IRA) — a huge tax, climate and health care package — has put fears over a transatlantic trade war high on the political agenda again. EU trade ministers are due to discuss their response on Friday as officials in Brussels draw up plans for an emergency war chest of subsidies to save European industries from collapse.
“The Inflation Reduction Act is very worrying,” said Dutch Trade Minister Liesje Schreinemacher. “The potential impact on the European economy is very big.”
“The U.S. is following a domestic agenda, which is regrettably protectionist and discriminates against U.S. allies,” said Tonino Picula, the European Parliament’s lead person on the transatlantic relationship.
An American official stressed the price setting for European buyers of gas reflects private market decisions and is not the result of any U.S. government policy or action. “U.S. companies have been transparent and reliable suppliers of natural gas to Europe,” the official said. Exporting capacity has also been limited by an accident in June that forced a key facility to shut down.
In most cases, the official added, the difference between the export and import prices doesn’t go to U.S. LNG exporters, but to companies reselling the gas within the EU. The largest European holder of long-term U.S. gas contracts is France’s TotalEnergies for example.
It’s not a new argument from the American side but it doesn’t seem to be convincing the Europeans. “The United States sells us its gas with a multiplier effect of four when it crosses the Atlantic,” European Commissioner for the Internal Market Thierry Breton said on French TV on Wednesday. “Of course the Americans are our allies … but when something goes wrong it is necessary also between allies to say it.”
Cheaper energy has quickly become a huge competitive advantage for American companies, too. Businesses are planning new investments in the U.S. or even relocating their existing businesses away from Europe to American factories. Just this week, chemical multinational Solvay announced it is choosing the U.S. over Europe for new investments, in the latest of a series of similar announcements from key EU industrial giants.
Allies or not?
Despite the energy disagreements, it wasn’t until Washington announced a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act that Brussels went into full-blown panic mode.
“The Inflation Reduction Act has changed everything,” one EU diplomat said. “Is Washington still our ally or not?”
For Biden, the legislation is a historic climate achievement. “This is not a zero-sum game,” the U.S. official said. “The IRA will grow the pie for clean energy investments, not split it.”
But the EU sees that differently. An official from France’s foreign affairs ministry said the diagnosis is clear: These are “discriminatory subsidies that will distort competition.” French Economy Minister Bruno Le Maire this week even accused the U.S. of going down China’s path of economic isolationism, urging Brussels to replicate such an approach. “Europe must not be the last of the Mohicans,” he said.
The EU is preparing its responses, such as a big subsidy push to prevent European industry from being wiped out by American rivals. “We are experiencing a creeping crisis of trust on trade issues in this relationship,” said German MEP Reinhard Bütikofer.
“At some point, you have to assert yourself,” said French MEP Marie-Pierre Vedrenne. “We are in a world of power struggles. When you arm-wrestle, if you are not muscular, if you are not prepared both physically and mentally, you lose.”
Behind the scenes, there is also growing irritation about the money flowing into the American defense sector.
The U.S. has by far been the largest provider of military aid to Ukraine, supplying more than $15.2 billion in weapons and equipment since the start of the war. The EU has so far provided about €8 billion of military equipment to Ukraine, according to Borrell.
According to one senior official from a European capital, restocking of some sophisticated weapons may take “years” because of problems in the supply chain and the production of chips. This has fueled fears that the U.S. defense industry can profit even more from the war.
The Pentagon is already developing a roadmap to speed up arms sales, as the pressure from allies to respond to greater demands for weapons and equipment grows.
Another EU diplomat argued that “the money they are making on weapons” could help Americans understand that making “all this cash on gas” might be “a bit too much.”
The diplomat argued that a discount on gas prices could help us to “keep united our public opinions” and to negotiate with third countries on gas supplies. “It’s not good, in terms of optics, to give the impression that your best ally is actually making huge profits out of your troubles,” the diplomat said.
Giorgio Leali, Stuart Lau, Camille Gijs, Sarah Anne Aarup and Gloria Gonzalez contributed reporting.
[ad_2]
Barbara Moens, Jakob Hanke Vela and Jacopo Barigazzi
For a few years now some car companies have been experimenting with an idea ripped straight out of video games. Someone somewhere figured that hey, if people are willing to pay for a game then spend more money inside the game they already bought, then they might do the same for cars—a far more expensive and lucrative business.
Making headlines this week, though, is an example that’s the most outrageous since Tesla used to lock battery range behind a paywall. Mercedes has announced a digital purchase for its all-electric vehicles called an “Acceleration Increase,” which costs $1,200 a year and when bought, “can improve an EQ vehicle’s acceleration by 0.8 to 1.0 seconds.”
While cars have always featured expensive add-ons—it’s a pillar of the whole business model—those have previously been tangible purchases. If you paid for bigger wheels you got bigger wheels. Parting with a few thousand extra for leather seats got you fancy leather seats.
What’s happening with these car subscription services, though, is far more ominous. You’re not really getting anything. Instead, thanks to advances in the operating systems and communications found in modern cars, what you’re buying is a vehicle with certain features limited or locked off, which can then be then enabled remotely.
It’s the same argument video games went through over a decade ago—and which we have collectively just shrugged at and moved on from—when people found out the DLC they were buying was already on the disc they bought. It’s the same story here; the motors in these Mercedes vehicles could always go that fast, and locking certain elements of their performance away behind a digital paywall is taking the absolute piss.
One common factor among all the very worst of these examples is that they’re limited to expensive, luxury vehicles, targeting rich people who probably don’t give a shit about spending (what’s for them) a few extra bucks a month, when they’ve dropped $100,000 or more on a car. The danger, of course, is that if those rich people start buying this stuff, and it becomes a successful business model, then it won’t be too long before we start seeing it in a Toyota Corolla and…oh. Great.
The EU is in emergency mode and is readying a big subsidy push to prevent European industry from being wiped out by American rivals, two senior EU officials told POLITICO.
Europe is facing a double hammer blow from the U.S. If it weren’t enough that energy prices look set to remain permanently far higher than those in the U.S. thanks to Russia’s war in Ukraine, U.S. President Joe Biden is also currently rolling out a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act.
EU officials fear that businesses will now face almost irresistible pressure to shift new investments to the U.S. rather than Europe. EU industry chief Thierry Breton is warning that Biden’s new subsidy package poses an “existential challenge” to Europe’s economy.
The European Commission and countries including France and Germany have realized they need to act quickly if they want to prevent the Continent from turning into an industrial wasteland. According to the two senior officials, the EU is now working on an emergency scheme to funnel money into key high-tech industries.
The tentative solution now being prepared in Brussels is to counter the U.S. subsidies with an EU fund of its own, the two senior officials said. This would be a “European Sovereignty Fund,” which was already mentioned in the State of the Union address by Commission President Ursula von der Leyen in September, to help businesses invest in Europe and meet ambitious green standards.
Senior officials said the EU had to act extremely quickly as companies are already making decisions on where to build their future factories for everything from batteries and electric cars to wind turbines and microchips.
Another reason for Brussels to respond rapidly is to avoid individual EU countries going it alone in splashing out emergency cash, the officials warned. The chaotic response to the gas price crisis, where EU countries reacted with all sorts of national support measures that threatened to undermine the single market, is still a sore point in Brussels.
European Commissioner Breton especially has led the pack in sounding alarm bells. At a meeting with EU industry leaders Monday, Breton issued his warning on the “existential challenge” to Europe from the Inflation Reduction Act, according to people in the room. Breton said it was now a matter of utmost urgency to “revert the deindustrialization process taking place.”
Breton was echoing calls from business leaders all over Europe warning about a perfect storm brewing for manufacturers. “It’s a bit like drowning. It’s happening quietly,” BusinessEurope President Fredrik Persson said.
The Inflation Reduction Act is a particular bugbear to EU carmaking nations — such as France and Germany — as it encourages consumers to “Buy American” when it comes to electric vehicles. Brussels and EU capitals see this as undermining global free trade, and Brussels wants to cut a deal in which its companies can enjoy the same American benefits.
With a diplomatic solution seeming unlikely and Brussels wanting to avoid an all-out trade war, a subsidy race now looks increasingly likely as a contentious Plan B.
To do that, it will be vital to secure support from Germany and from the more economically liberal commissioners such as trade chief Valdis Dombrovskis and competition chief Margrethe Vestager.
At a meeting of EU trade ministers on Friday, Brussels hopes to get more clarity from Berlin on whether they are willing to break their subsidy taboo.
France has long been calling for a counterstrike against Washington by funneling state funds into European industry to help industrial champions on the Continent. That idea is now also gaining traction in Berlin, which has traditionally been economically more liberal.
On Tuesday, German Economy Minister Robert Habeck and his French counterpart Bruno Le Maire issued a joint statement to call for an “EU industrial policy that enables our companies to thrive in the global competition especially through technological leadership,” adding that “we want to coordinate closely a European approach to challenges such as the United States Inflation Reduction Act.”
Apart from the trade ministers’ meeting on Friday, the idea will also informally be discussed among competition ministers next week. One official said European leaders will also discuss it on the margins of the Western Balkan summit on December 6 and at the European Council mid-December.
Hans von der Burchard, Giorgio Leali and Paola Tamma contributed reporting.
Luxury automaker Genesis Motor is jumpstarting the DJ booth for a night powered completely by the battery of their electric SUV, the GV60.
Genesis is pulling up to power the global livestream set, which will be free to all viewers. The Korean automaker is teaming up with Grammy-nominated DJ and dance music producer Jayda G to soundtrack the night. She’ll be supported by Korean artist Didi Han.
While the idea to create a full-fledged nightlife experience powered entirely by a car battery would ordinarily seem unlikely to succeed, Genesis’ GV60 is well-equipped for the effort. The vehicle’s proprietary vehicle-to-load technology allows the car to channel its energy towards powering outside devices.
The car will be doing some heavy lifting, but for perspective, the vehicle’s max output has the ability to power the average home. Impressively, the GV60 will boast not only the mere ability to keep the music going, but also simultaneously fuel a laser-filled light show.
Scroll to Continue
The full livestream event kicks off on November 30th at 7:45pm GMT here.
BERLIN — With only six weeks to avoid a transatlantic trade showdown over green industries, the Germans are frustrated that Washington isn’t offering a peace deal and are increasingly considering a taboo-breaking response: European subsidies.
Europe’s fears hinge on America’s $369 billion package of subsidies and tax breaks to bolster U.S. green businesses, which comes into force on January 1. The bugbear for the Europeans is that Washington’s scheme will encourage companies to shift investments from Europe and incentivize customers to “Buy American” when it comes to purchasing an electric vehicle — something that infuriates the big EU carmaking nations like France and Germany.
The timing of this protectionist measure could hardly be worse as Germany is in open panic that several of its top companies — partly spurred by energy cost spikes after Russia’s invasion of Ukraine — are shuttering domestic operations to invest elsewhere. The last thing Berlin needs is even more encouragement for businesses to quit Europe, and the EU wants the U.S. to cut a deal in which its companies can enjoy the American perks.
A truce seems unlikely, however. If this spat now spirals out of control, it will lead to a trade war, something that terrifies the beleaguered Europeans. While the first step would be a largely symbolic protest at the World Trade Organization (WTO), the clash could easily slide precipitously back toward the tit-for-tat tariff battles of the era of former U.S. President Donald Trump.
This means that momentum is growing in Berlin for a radical Plan B. Instead of open tariff war with America, the increasingly discussed option is to rip up the classic free-trade rulebook and to play Washington at its own game by funneling state funds into European industry to rear homegrown green champions in sectors such as solar panels, batteries and hydrogen.
France has long been the leading advocate of strengthening European industry with state largesse but, up until now, the more economically liberal Germans have not wanted to launch a subsidy race against America. The sands are now shifting, however. Senior officials in Berlin say they are increasingly leaning toward the French thinking, should the talks with the U.S. not lead to an unexpected last-minute solution.
Berlin is the 27-nation bloc’s economic powerhouse, so it will be a decisive moment if Berlin ultimately decides to throw its might behind the state-led subsidy approach to an industrial race with the U.S.
Running out of time
The clock is ticking for a truce with Biden that looks increasingly unlikely.
Recent attempts by a special EU-U.S. task force to address EU concerns have met little enthusiasm on the American side to amend the controversial legislation, the European Commission told EU countries this week.
“There are only a few weeks left,” warned Bernd Lange, the chair of the European Parliament’s trade committee, adding that “once the act is implemented, it will be too late for us to achieve any changes.”
Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S., and Brussels could also strike back against what it sees as the discriminatory U.S. subsidies by imposing punitive tariffs. Warnings of a trade war are already overshadowing the runup to a high-level EU-U.S. meeting in Washington on December 5.
MEP Bernd Lange Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S. | Philippe Buissin/European Union
It’s precisely the kind of spat that the German government wants to avoid, as Chancellor Olaf Scholz hopes to forge unity among like-minded democracies amid Russia’s war and the the increasing challenges posed by China. Earlier this month, Scholz’s government made an overture to Washington by suggesting that a new EU-U.S. trade deal could be negotiated to resolve differences, but that proposal was quickly rejected.
There are sympathizers for the subsidies approach in Brussels, with officials at the EU’s executive saying powerful Internal Market Commissioner Thierry Breton is a leading proponent. Breton is already advocating for a “European Solidarity Fund” to help “mobilizing the necessary funding” to strengthen European autonomy in key sectors like batteries, semiconductors or hydrogen. Support from Germany could help Breton win the upper hand in internal EU strategy discussions over the more cautious Trade Commissioner Valdis Dombrovskis.
Breton will travel to Berlin on November 29 to discuss the consequences of the Inflation Reduction Act as well as industrial policy and energy measures with Scholz’s government.
The German considerations even echo calls from top officials of the Biden administration, including U.S. Trade Representative Katherine Tai, who are urging the EU to not engage in a transatlantic trade dispute and instead roll out their own industrial subsidies; a strategy that Washington also sees as way to reduce dependence on China.
Plan B
Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support if the negotiations with Washington fail to reach a solution, lending support to similar plans articulated by French President Emmanuel Macron, who will meet Biden on December 1 in Washington.
Although Scholz does not endorse Macron’s framing of the initiative as a “Buy European Act” (which sounds too protectionist for the Germans), the chancellor agrees that the EU cannot stand by idly if it faces unfair competition or lost investments, people familiar with his thinking said late last month.
Negative economic news, such as carmaker Tesla putting plans for a new battery factory in Germany on hold and instead investing in the U.S., or steelmaker ArcelorMittal partly closing operations in Germany, have increased calls in Berlin to consider more state support to counter a negative trend caused by both the U.S. scheme and high energy prices.
Although the official government line remains that Berlin is still holding out hope for a negotiated solution with Washington, officials in Berlin say that it could be possible to increase incentives for industries to locate the production of green technologies in Europe.
A spokesperson for the German Economy Ministry said that faced with the challenges stemming from the Inflation Reduction Act, “we will have to come up with our own European response that puts our strengths first … The aim is to competitively relocate green value creation in Europe and strengthen our own production capacities.”
The spokesperson warned, however, that both the U.S. and EU “must be careful that there is no subsidy race that prevents the best ideas from prevailing in the market,” and added: “Green technologies in particular thrive best in fair competition; protectionism cripples innovation.”
One important condition that could help Germany and the EU to safeguard said fair competition and to avoid the global free trade system descending into protectionist tendencies would be to ensure that any EU state subsidies remain in line with WTO rules. That means, in contrast to the U.S. law, that those subsidies would not discriminate between local and foreign producers.
German Chancellor Olaf Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support | Sean Gallup/Getty Images
Crucially, support is also coming from German industry.
“In the area of industrial policy and subsidies, we could look at measures that are compatible with WTO rules — as the EU is already doing in the chip sector,” said Volker Treier, the head of foreign trade at the German Chamber of Commerce.
Treier also stressed that “there must be no discrimination” against foreign investors, but added: “This explicitly does not rule out the possibility of settlement bonuses, which in turn should be available to investors from all countries who would be interested in such investment commitments in Europe.”
In Brussels, the Commission’s competition department has also made clear that it’s looking with an open mind at upcoming proposals.
“There are no instruments excluded a priori” when it comes to the EU’s response to the U.S. subsidies, the department’s state aid Deputy Director General Ben Smulders said Thursday.
Barbara Moens, Suzanne Lynch and Pietro Lombardi in Brussels and Laura Kayali and Clea Caulcutt in Paris contributed reporting.