Green with envy: debate heats up over US subsidies

Today’s top stories

• More than 750,000 UK households are at risk of defaulting on their mortgage payments in the next two years, the country’s top financial regulator has warned, highlighting the pressure being felt by ever more people during the cost of living crisis.

• Fast Retailing, Asia’s largest clothing retailer and owner of Uniqlo, is raising wages by 40 per cent in Japan, where inflation is at the highest level in decades.

• Goldman Sachs has begun its biggest cost-cutting exercise since the financial crisis, alongside more than 3,000 job cuts. US banks are set to report another quarter of bumper profits from lending over coming days.

For up-to-the-minute news updates, visit our live blog

Good evening,

A $2.5bn expansion by a South Korean solar power company in the US state of Georgia is the latest sign of how President Joe Biden’s green subsidies are transforming clean energy investment and fuelling calls for similar measures in Europe.

The move announced today by Hanwha Q Cells is the largest foreign direct investment in US solar manufacturing and comes as politicians try to rebuild America’s industrial base and make supply chains less reliant on imports from China.

Ever since it was passed last year, the US president’s $369bn attempt at greening the economy with his (somewhat misleadingly named) Inflation Reduction Act has faced accusations that it was breaking WTO rules and “fragmenting the west” by subsidising American industries to the detriment of trading partners, particularly in Europe.

The German car industry today added to calls for US-style subsidies from Brussels, describing the IRA as a “wake-up call” for European regulators and a “protectionist and discriminatory regulatory approach that is at odds with open trade”. It follows accusations from the Belgian prime minister yesterday that the US was waging an “aggressive” campaign to lure companies across the Atlantic with the promise of support.

European Commission chief Ursula von der Leyen has said the EU would try to match Washington’s measures, but the situation is fraught with difficulty. For one thing, offering EU-wide credits is impossible because responsibility for tax policy lies with member states, while state aid rules say governments cannot offer help that puts competitors elsewhere in the bloc at a disadvantage.

To add fuel to the fire, EU trade commissioner Valdis Dombrovskis has said the US scheme risked backfiring by driving European companies closer to China. Washington has attempted to build bridges by indicating EU companies could benefit from a tax credit scheme for commercial clean vehicles, which Brussels regards as a welcome first step while falling short of addressing all of its concerns.

FT contributing editor Adam Tooze said an arms race on industrial policy would be deeply counterproductive. In any case, although the US package may appear huge, it does not pose an existential threat to Europe: it will be disbursed over 10 years and in proportional terms is half the size of what Europe has already committed in clean energy subsidies.

“We are in an era of turbulent transition,” he concludes. “New modes of industrial intervention are our best means of responding to the multiple challenges ahead. These involve countless conflicts of interest. But let us not conflate those tensions with questions of sovereignty any more than we have to.”

Need to know: UK and Europe economy

UK prime minister Rishi Sunak said the government wanted to have a “constructive dialogue” with unions as ambulance workers staged fresh walkouts. But rail unions have said agreement in their dispute was “further away than when we started”. FT analysis shows that many key occupations have seen their pay squeezed over the past decade.

The Federation of Small Businesses said its members would be hit hard by the cut in government support for energy bills. The new £5.5bn scheme will offer more generous support for energy-intensive users but will probably mean extra costs being passed on to customers.

Core eurozone inflation will remain lower than in the US, according to new forecasts from the European Central Bank, despite headline inflation being higher. Meanwhile, European house prices are forecast to decline in 2023 without the prospect of a significant rebound over the next three years.

Sweden is planning to build new nuclear plants to boost energy security as the debate heats up on high electricity prices.

Russia’s war in Ukraine is costing it more than it made from record oil and gas revenues, the country’s finance minister admitted, with its budget gap widening significantly in 2022.

Austria is shifting to the right as fears grow about the cost of living and migration, propelling the Freedom party (FPÖ) to the top of the opinion polls. The country’s next general election must be held by the end of 2024.

Need to know: Global economy

The World Bank warned the global economy was on the “razor’s edge” of recession as it cut growth forecasts to 1.7 per cent this year, a sharp drop from an estimated 2.9 per cent in 2022.

As chief economics commentator Martin Wolf explains, the outlook is particularly dire for developing countries engulfed by debt problems after dealing with the Covid shock, followed by a sharp deterioration in their terms of trade, as food and energy prices soared.

Falling inflation should be good news for investors, says markets editor Katie Martin, so why are they not dancing in the streets? Although the US Federal Reserve is expected to hit pause in its programme of policy tightening, party poopers think this could just be a short breather before it reloads and starts again. Expectations of a Fed slowdown meanwhile have boosted gold prices.

Our Big Read looks at President Xi Jinping’s plans to reset China’s economy and improve its political image.

Egypt’s pound hit a new low as authorities struggle with a currency crisis. The government has also vowed to cut the military’s role in its economy as part of its $3bn bailout package from the IMF.

Brazil is on alert after former president Jair Bolsonaro posted a video online that questioned the result of the October election. Luiz Inácio Lula da Silva’s administration said extremist groups were planning nationwide protests on Wednesday night to overthrow the new president.

Peru’s political crisis has intensified after more people were killed in clashes with police as they demanded the reinstatement of detained former president Pedro Castillo.

Need to know: business

A new German law is leading the way on how Europe might curb the power of Big Tech. As our Big Read explains, the Competition Act has the potential to capture even more illegal conduct by being less prescriptive on what constitutes anti-competitive behaviour.

UK commercial property deals have collapsed to their lowest level in a decade as investors face up to higher interest rates, the prospect of recession and the fallout from the infamous “mini” Budget.

The crypto crisis continues as US-listed exchange Coinbase said it would cut a fifth of its workforce. The industry has been rocked by a plunge in prices of popular coins and the implosion of the FTX derivatives exchange.

Rokos Capital Management, one of the world’s biggest macro hedge fund firms with around $15.5bn in client assets, reported an annual loss thanks to turmoil in the bond markets.

China’s Citic bank has come up with a novel way to lure in wealthy customers: the offer of mRNA vaccines. A shot can be guaranteed with the deposit of HK$4mn ($512,200).

Airbus beat its US rival Boeing to become the world’s biggest jet maker for the fourth year in a row. The private jet business is still booming, as commercial airlines show signs of bouncing back. Global flights rose by 10 per cent last year and were 14 per cent higher than before the pandemic.

The World of Work

What happens if we look at failure in the workplace as an opportunity to grow? Listen to the new Working It podcast.

Some good news

The recovery of the earth’s ozone layer is on track, according to UN experts. In a report published every four years on the progress of the Montreal Protocol, the panel confirmed the phaseout of nearly 99 per cent of banned ozone-depleting substances.