Does Europe Need a Bigger Stick to Attract Investment?

­I was catching up with some tech news the other day, and one article in particular caught my attention. The article was an announcement by LG Chem saying that the company would invest $3.2B opening up a battery cathode plant in Tennessee. I get those types of press releases all of the time, so wasn’t paying too much attention until I got to one part which stated, “the Tennessee facility allows LG Chem to proactively address the changing dynamics of the global battery material market and with legislation such as the Inflation Reduction Act (IRA). In addition to the benefits realized by investing in manufacturing on U.S. soil, LG Chem envisions the Tennessee site being the supply chain hub where material and recycling partners work together to supply global customers”. In short, one of the top priorities for this South Korean company to choose a global base was legislation that was signed into law by President Biden earlier this year.

The part of the IRA bill that the release was referencing was the $7,500 tax credit due to new EV owners. Half of the amount of rebate that the customer receives is tied to the originating country of the EV’s battery, and the other half is tied to the battery supply chain. Currently, the law states that 40% of the critical chemicals that go into battery cells must be extracted and processed in the US, or official trading partners, and that percentage is scheduled to rise each year until it hits 100% in 2029. This part of the law has upset many allies of the US, including the EU and South Korea, who claim that it gives an unfair trading advantage to US vehicle manufacturers. In reply, the US said that batteries for EVs are a critical technology that must be kept onshore. At the moment, almost 40% of the world's supply is controlled by Chinese companies and the US is determined to break its reliance on China for any technologies it considers to be critical to its economy.

As I wrote in this column a couple of months ago, it seems that global trade links are breaking down since the COVID19 pandemic to be replaced by regional supply chains. Both the US and the EU have already taken steps to safeguard their own industries. However, the US seems to be more proactively preparing. While Europe may have the ‘carrot’ of providing incentives to inward investors, it doesn’t have the same ‘stick’ aspect that is included in the US’ IRA bill targetted at domestic EV production. And in the case of LG Chem, that was one of the deciding factors in the decision where to situate an important global base. If Europe wants to remain competitive and win those types of global technology centres and create high value jobs for its population, it may have to look at taking a leaf out of the US book and carry a big stick of its own.