A central discussion on the opening day of the World Economic Forum’s annual meeting in Davos was Europe’s present and future industrial policy, a day after US President Trump rolled out a wide range of executive orders which will have as many ramifications for global trade as domestic policy.
Within hours of taking office, President Donald Trump signed an executive order to suspend further funding from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA).
Olaf Scholz, Federal Chancellor of Germany, said it was clear that President Trump and his government “will keep the world in suspense” with energy and trade policy.
“The President says ‘America first’ and there’s nothing wrong about that, however cooperation and mutual understanding are in the intrinsic interest,” he said. “We Europeans need to stand together and with partners around the globe, and be more resilient and more competitive.”
This sense of collaboration was echoed by European Commission President Ursula von der Leyen in her speech, although there wasn’t any clear indication of how Europe would react to stringent US tariffs.
“It’s in no-one’s interest to break the bonds of the global economy,” she said. “We must pursue a more balanced relationship with China, and entire supply chains stretch across both sides of the Atlantic. The US provides over 50% of our LNG. A lot is at stake for both sides.”
In the event that collaborations do unravel, Europe will face stark choices. Belgium Prime Minister Alexander De Croosaid, believes Europe should stick to its guns when it comes to the Green Deal and clean tech policies. “What we should change is being more open on the ways to achieve it,” he said.
In a session, Demystifying industrial policy, Bob Willen, Global Managing Partner and Chairman at Kearney, described how industrial policy government interventions have increased from 90 in 2009 to 2,500 in 2023, covering subsidies, tariffs and infrastructural-related investments.
“What we see though is there’s tremendous diversity, range and scope,” he said. “Many of these interventions take a long time to see return on investment – the more sophisticated one gets, the harder it is to see immediate returns.”
Dani Rodrik, Ford Foundation Professor of International Political Economy, Harvard Kennedy School of Government, said the biggest changes have been in green industrial policies.
“It’s really hard to understate the importance of green industrial policies and the role they’ve played in bringing down the cost of renewables,” he said. “China didn’t invent them – rather it was the Obama administration – but they really turbocharged it. The IRA has really been the US version of China’s green industrial policies, and it’s been acting as a substitute for carbon pricing.”
Kimberly Clausing, Eric M. Zolt Chair in Tax Law and Policy, UCLA School of Law, said one way to look at the Trump administration is that it is an abrupt reversal of Biden’s policies.
“With Trump, it’s a much more transactional approach and less principled and not based on any externality, and also I think there’s a deeply unseated misunderstanding of basic international economics – this lashing out at imbalances threatens the entire world economy with stagflationary pressures and disruptions to the supply chain. If you look at the US, over half of our imports are intermediate goods, so what does that do to manufacturing and employment?”
“My biggest concern would be a move away from global collective action on pressing problems like climate, and emphasis on carbon-based fuels, which is harmful to international cooperation. My hope is the world will ignore this rather than learn from it.”
On whether the IRA could be overturned, she said for it to be repealed would need the support of 50 senators.
“It’s not clear that they will, because a lot of investments are in red states, but they could, and they will desperately need the revenue because the tax cuts and Jobs Act extensions are projected to cost $5trn over a decade,” she said.
Tengku Zafrul Bin Tengku Abdul Aziz, Minister of Investment, Trade and Industry in Malaysia, underlined the complexities facing its country, which trades heavily with China and US. “We need to navigate and play this carefully,” he said.
But a recurring theme was the timeframes associated with industrial policy, a point which is often overlooked in tariff-screaming headlines. “For Malaysia, our semiconductors were built over five decades, so we are in a sweet spot where the ecosystem is already there,” he said.
Vincent Clerc, CEO A.P. Moeller-Maersk, echoed the point, saying it took 25 years to build the global supply chain to what it is today. “It won’t be undone by tariffs, there are layers of vendors,” he said.
In a separate industrial decarbonisation panel, Andy Beshear, Governor of Kentucky, said sustainability will continue to be a major focus of the US economy.
