Home » ‘Bidenomics’ is a Big Hit — Outside the US

‘Bidenomics’ is a Big Hit — Outside the US

The president’s signature climate law, with its massive subsidies and push for domestic manufacturing, has leaders across the UK, Australia and Europe scrambling to follow suit. But American voters seem unimpressed.

“Bidenomics” is falling flat with American voters. But the rest of the world can’t get enough of it.

The mammoth climate law that serves as the linchpin of President Joe Biden’s economics program has ignited a new zeal among leaders around the world for the kind of winner-picking, subsidy-flush governing that has been out of fashion in many countries for the past 40 years. The Inflation Reduction Act’s mix of lavish support for clean energy technologies and efforts to box out foreign competitors is also promoting a kind of green patriotism — and even some politicians on the right, at least outside the U.S., say that’s a climate message they can sell.

“It’s probably the most impressive piece of legislation in my lifetime,” ex-diplomat Marc-André Blanchard, an executive at Canada’s biggest pension fund, told POLITICO at the sprawling venue of the COP28 U.N. climate talks in Dubai.

That may provide little political comfort to Biden, as multiple polls show him losing the economic messaging war to former President Donald Trump, his most likely opponent in next year’s presidential election. Trump has promised to rip out the climate law root and branch.

Some polls show that most Americans have heard little or nothing about the IRA since Biden signed it a year ago, even as he has identified it as a central plank of his reelection effort.

But Biden’s law has struck something here at the climate talks in Dubai — either inspiration or a nerve. Trade measures for the first time are an official focal point of the summit’s diplomatic negotiating text, showing just how potent and unavoidable it has become for national governments to debate policies favoring their domestic clean energy industries.

“Bidenomics” is a term that the president’s supporters have embraced as a shorthand to describe his economic record, which includes his promotion of clean energy as a tool to reestablish American manufacturing and create jobs.

After originally billing the law as offering $369 billion in climate and clean energy goodies, the White House is now proudly proclaiming it will spur closer to $700 billion — or even $1 trillion — in green incentives over 10 years. Republicans and other conservatives have grumbled about those ramped-up estimates, saying they point to an out-of-control program that’s worsening inflation. But as the White House sees it, the jump means the tax credits for priorities such as homegrown clean power and electric vehicles have proven more popular than initially anticipated.

“I like to look at this as we’ve outperformed, and that means we’re going to meet our climate goals faster. That’s a good thing,” White House Office of Management and Budget Director Shalanda Young told reporters in Dubai on Dec. 4.

That performance is having a real-world impact as investors shift their money to the U.S. from abroad, hungry to take advantage of the tax breaks. In July, for example, Swiss solar manufacturer Meyer Burger canned plans to build a factory in Germany, choosing Arizona instead. That has left political leaders across the world with a choice: Grinch and grumble about the United States’ sudden clean industry favoritism, or follow suit. Many are doing both.

The more grumbly approach is finding a voice at COP28. The provisions of the IRA that earmark subsidies only for products made in America have stirred a coalition of major emerging economies, led by Brazil and including China, to push for the climate meeting to condemn “discriminatory” legislation.

“Why can’t they just give the same treatment to the clean and low-carbon technologies and products from other countries?” Chinese climate envoy Xie Zhenhua said at a press conference on Saturday.

Even the United States’ favorite pals on the global stage have felt rattled by the sudden diversion from decades of free trading. But in the U.K., European Union and Australia, many leaders are now working on their own versions of the IRA.

This year was the hottest in recorded history, yet is also likely to be one of the coolest any living human will experience for the rest of their lives. For some leaders, the IRA and its kin reflect the urgency of the problem, by aiming to transform the economy at a pace the market can’t deliver on its own.

“We are in the middle of a climate crisis because firms couldn’t do the job of decarbonizing,” said Todd Tucker, director of industrial policy and trade at the progressive think tank Roosevelt Institute. “The climate crisis is the world’s biggest market failure ever and it’s going to take really strong public investment.”

In the U.K., Prime Minister Rishi Sunak’s Conservative government has deliberately sought to distance itself from Biden’s approach — labeling it a protectionist distortion to international free trade.

But for the opposition Labour party — which polls suggest will oust Sunak in an election expected next year — “Bidenomics” has become a political lodestar.

The party’s treasury spokesperson, Rachel Reeves, uses the term “securonomics,” but the basic ingredients are the same: a more active state, government subsidies crowding in private investment and a view to keeping supply chains within the U.K. — along with messaging that casts the green energy transition as a national mission which can create jobs in the former industrial communities that turned against Labour in recent elections.

Labour’s team has close ties to some of the key architects of the IRA. The party’s energy spokesperson, Ed Miliband, is in regular contact with White House economics adviser Heather Boushey, said a Labour official. While in Dubai for COP28, Miliband met with Biden’s deputy energy secretary, Dave Turk.

The IRA solves a problem that Labour has been wrestling with: how to sell a rapid energy transformation to voters reeling from extreme electricity price inflation and a cost-of-living crisis that won’t abate. Focus groups run by the party find that policies partly inspired by Biden’s approach, including a state-backed energy company — Great British Energy — that will invest domestically, are popular with the voters the party is trying to reach.

The Bidenomics approach had helped Labour frame “an argument for economic change for many people who voted for Brexit,” said the Labour official, who was granted anonymity because they were not authorized to speak on the record.

But even to some in Biden’s party, all this global gushing over the IRA misses a few points.

The Biden administration is not relying wholly on sweeteners: It is still ratcheting up regulations on polluting sectors like autos and power plants, dismaying many of the same companies set to reap the benefits of the IRA.

In addition, Republicans’ historic resistance to clean energy spending makes it difficult to provide stable funding. GOP lawmakers have also for years resisted Democrat efforts to end tax code privileges for oil and gas companies, making fossil fuels artificially inexpensive.

“It’s the flip side of the IRA question: Why hasn’t the U.S. adopted Norway’s policy to give people the true price of gasoline because, after all, we love free markets, don’t we?” said Sean Casten (D-Ill.).

That’s left financing to the federal tax code, a complicated endeavor requiring more bureaucracy. Some benefits have struggled to hit the street, while new tax regulations for electric cars have limited the number of models that can even get the federal incentives.

“I think that they’re confused about why we did it this way,” Rep. Scott Peters (D-Calif.) said of the Europeans. “And also it has trade implications that are going to be the next thing that we have to deal with.”

In Australia, the IRA has had a jarring effect, said Matt Kean, the former treasurer of the state of New South Wales.

“The IRA has basically sent investors fleeing the rest of the world and going to the States. And it’s thrown down the gauntlet to every other country to turbocharge its efforts in the race for global capital,” he said.

Kean is a Liberal, a member of the center-right party that was thrown out of the federal government last year in an election in which voters punished it for blocking climate policy for over a decade. But he said an IRA-type policy could unlock conservative Australia’s cringe at fixing the climate problem.

“It’s basically got a nationalistic focus, which does appeal to people who traditionally were skeptical about the green movement or the transition to a low carbon economy. Particularly in Australia, where the threat of China looms large over our psyche,” he said.

The difficulty, said Kean, is that Australia can’t match U.S. financial firepower. So it will have to invest in technologies where it has natural advantages, like an abundance of land, wind and solar.

Meanwhile, the Labor government that was elected a year ago has budgeted $1.3 billion in spending this year on green hydrogen projects and around $660 million on moving the economy toward electricity rather than fossil fuels. “But the scale and timing have not matched similar packages in the U.S. and EU,” said Richie Merzian, international director of the Smart Energy Council, an Australian renewable industry group.

The IRA is “setting a pace of development that now the rest of the world absolutely wants to follow,” said Sharan Burrow, the former general secretary of the International Trade Union Confederation. “The big challenge is finance for smaller countries because the U.S. has managed to be this drawing power. But I don’t think that’s insurmountable.”

The IRA represents a major challenge to the EU, which, as a collective of 27-nation states, has structural political differences and also has far higher energy prices than the U.S., spooking manufacturing investors.

The EU itself has limited powers to raise and spend taxpayer money, and the national capitals on the whole dictate industrial policy. The bloc has always faced a powerful disincentive to sanctioning state subsidies, for fear that the biggest economies in France and Germany would simply overwhelm the minnows.

But since the IRA was passed last year, the European Commission has loosened its restrictive policies on state aid and is scrambling through its own Net Zero Industry Act, which aims for 40 percent of the bloc’s clean tech needs to be manufactured within the EU by 2030. In September, President Emmanuel Macron announced that, from almost a standing start, France would build one million heat pumps by 2027.

The EU will also start operating a border tariff on high-carbon products in 2026, which seeks to keep hold of its heavy industries even as they pay an increasingly punitive price for polluting to the EU Emissions Trading System.

So rather than driving a wedge down the transatlantic alliance, said Scott Paul, president of the Alliance for American Manufacturing, “I would call it ‘game respect game’ because we finally got our act together. In a way it became to me like this virtuous competition which will make the pie grow.”

This kind of industrial policy may be suddenly vogueish in the West, but China has been pouring subsidies into clean tech for decades. And other emerging economies have also been ahead of the curve. India’s Prime Minister Narendra Modi set his sights on building a solar industry to compete with China.

“It’s not an accident that that’s happening there,” said Jake Levine, chief climate officer of the U.S. International Development Finance Corp. “They’ve created production incentives to build up a domestic industrial base to supply that.”

Burrow, who as a union leader has fought against free traders for years, sees the IRA and the climate agenda as a new dawn. “Industry policy is back,” she said.

Source : Politico

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