Written by 11:02 am Europe Economy

Economic battle lines are drawn and Canada, Europe not on same side

The hard reality is, the two ‘like-minded allies’ are on different sides of a protectionist wall that has been erected by the Biden Administration

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MONTREAL — If personal affinity shaped the geopolitical world emerging from the pandemic, Canada and the European Union would be bosom buddies.

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But it is more likely the two will be rivals in a beggar thy neighbour regional subsidy war that is brewing between North America and Europe.

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Thierry Breton, the commissioner for the Internal Market of the European Union, stopped in Canada on his way back from Washington, D.C., to take part in an event with Francois-Philippe Champagne in Montreal.

The irrepressible industry minister took his guest ice fishing for tommycod on the famous Sainte-Anne River on Sunday, and graciously allowed him to catch all the fish.

At a lunchtime event Monday hosted by the Conseil des relations internationales de Montréal, the two politicians referred to themselves as “like-minded allies” and talked about how “co-operation is better than competition.”

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But the hard reality is, the two are on different sides of a protectionist wall that has been erected by the Biden Administration, via its Inflation Reduction Act green tech subsidy plan.

For all Champagne’s platitudes about “we’re both winning,” the inconvenient truth is that the IRA is pulling investment towards North America, and Canada is piggybacking on the U.S. legislation to poach projects from Europe, such as Volkswagen’s plans to build a battery plant in this country.

The National Post interviewed the two men after the event, and in a more frank moment, Champagne conceded that “we are seeing a realignment of supply chains on a more regional basis, where you have to put more emphasis on resiliency.”

Breton is too hoary a politician to be hornswoggled by the rhetoric, as befits a former French finance minister.

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“A new world is re-shaping,” he said. It means that Europe, too, is seeking resiliency after the pandemic and the push to reduce dependency on Putin’s Russia for energy.

Dependencies have been used as a weapon against us and supply chains are viewed as geopolitical instruments, he told an audience in Washington.

This means an accelerated decarbonization plan is required, in much the same way as President Biden has argued the U.S. needs to jump-start its clean-technology industries.

The solution for the Europeans is the same as for the Americans — in Davos, European Commission President Ursula von der Leyen said she will create an industrial plan similar to the IRA, which will make state aid more accessible and introduce targeted subsidies for green-tech operations.

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“We are doing what we have to do,” Breton said. “It is important to have a solid industrial base.”

The Europeans have pointed out that some of the IRA is not compatible with World Trade Organization rules, particularly the $7,500 subsidy to consumers for electric cars.

The U.S. Trade Representative Katherine Tai has said America wants to avoid a subsidy race on electric vehicles and Breton indicated that “some progress” has been made on the issue.

But it’s clear that we are entering a very different world. As Breton told his audience in Washington, “it’s the end of globalization the way we know it.”

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In our interview he said he doesn’t believe globalization is dead. “I think it’s an evolution where we need to make sure we have everything that is needed for our industry. I call it the new geopolitics of supply chains…It doesn’t mean we need to have everything in Europe. Absolutely not. But we need to build bridges and have relations that make sure that, whatever happens, we can continue to provide what we have to provide.”

As a result, Breton’s discussions with Champagne ranged across subjects like green hydrogen and critical minerals supply, although notably not liquified natural gas.

Despite the bonhomie between the two men, the economic battle lines have already been drawn — and they are not on the same side. The U.S. is set to pour $500 billion into domestic production, where it may or may not be used efficiently because it is shielded from imports. Europe has now resolved to do exactly the same thing, increasing state aid from an already whopping $784 billion last year.

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Canada, which only benefits from the IRA when it comes to electric vehicles and rare minerals, will be forced to find equivalent funds to compete in this race to the bottom, or lose its industrial base.

The IRA was designed to protect America’s technological edge over China. But the unintended corollary is the creation of a new rivalry between transatlantic trading partners.

The old proverb has it that when you teach a man to fish, you feed him for a lifetime. It seems Breton needs no lessons when it comes to self-sufficiency at the ice-fishing hole or in protecting Europe’s industry.

• Email: jivison@postmedia.com | Twitter:

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