The World Economic Forum in the Swiss Alps is typically a venue for politicians and business leaders to deliver sermons about the benefits of globalization and cross-border cooperation.
There was some of that at this year’s meeting in Davos. But the conference notably featured influential calls for greater localization of production, as geopolitical tensions accelerate national or regional efforts to secure supplies of energy and computer chips — prioritizing reliability over efficiency in an era shaped by a continuing pandemic and the biggest war in Europe since 1945.
A major flash point was the transatlantic rift over US President Joe Biden’s Inflation Reduction Act. European leaders used Davos to amplify complaints about the law’s tax breaks for American companies that make parts for green energy projects, which they claim will disadvantage European firms.
“Protectionism hinders competition and innovation and is detrimental to climate change mitigation,” German Chancellor Olaf Scholz said in a speech on the forum’s main stage.
Valdis Dombrovskis, the EU commissioner for trade, said that while the largest climate investment in US history was commendable, Europe’s “concern is that it’s done in a discriminatory way.”
Scholz and European Commission President Ursula von der Leyen said talks with the United States to find a solution are ongoing. But EU leaders stressed the need to quickly roll out a bold investment package of their own, raising concerns that a tit-for-tat subsidy fight may be brewing.
“Europe must do the same thing,” French finance minister Bruno Le Maire said Friday. “If we want to compete, we must have a very strong, effective, swift industrial policy.”
South Korean President Yoon Suk-yeol also warned that “building up walls and intensifying protectionism cannot be the right solution.” Seoul has been critical of Biden’s subsidy program.
Differences over China
Who controls sensitive semiconductor technology was also subject of much debate, as the United States ramps up efforts to curtail China’s development of advanced products that will in the future power military weapons and artificial intelligence.
Chinese investments in German and British chipmaking have recently been blocked or reversed. But Europe has been wary of picking a side in the escalating fight, wanting to maintain its engagement with Beijing.
Dutch Prime Minister Mark Rutte told a Davos panel that China is a “huge economy with huge potential and a huge innovation base,” even if “legitimate security concerns” exist.
But corporate executives were blunt in their assessment of where they believe the chip fight is headed.
The location of “oil reserves [has] defined geopolitics for the last five decades,” Intel CEO Pat Gelsinger told CNN’s Julia Chatterley. “Where the technology supply chains are, and where semiconductors are built, is more important for the next five decades.”
‘A less efficient world’
Business leaders at Davos, rattled by the pandemic and Russia’s war in Ukraine, revealed a growing consensus that supply chains should be shorter and, if possible, production should be located in countries seen as allies with shared values — a reversal of decades-long efforts to make goods as quickly and cheaply as possible.
That could benefit countries like India, the world’s biggest democracy. Representatives from Asia’s third largest economy showed up in force at Davos to meet with international investors.
“The world needs resilience,” said Tata Sons Chairman Natarajan Chandrasekaran, speaking of India’s ability to tap into a global reconfiguration of supply chains and trade ties.
Yet this reorientation will have consequences, attendees at the gathering acknowledged.
“We’re looking at a less efficient world,” US Trade Representative Katherine Tai said. Still, she said, there’s a “premium” to be paid for trust, which acts as an “insurance policy” against future complications and disruptions, from extreme weather to conflict.
— Hanna Ziady and Clare Duffy contributed reporting.
