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US subsidies appealing to German companies, survey shows

The logos of BDA, BDI and DIHK are pictured at their common headquarters in Berlin

BERLIN (Reuters) -The Biden administration's effort to promote climate-friendly technologies through the Inflation Reduction Act (IRA) is attracting German companies to the United States, a survey of the German Chamber of Commerce and Industry DIHK released on Wednesday showed.

According to the DIHK survey of 2,400 companies from all sectors, one in 10 German companies is already planning to relocate production to other countries.

The report showed that North America, and particularly the U.S., have become more popular for business.

European Union leaders have expressed concern that local content requirements of much of the $369 billion of subsidies in the IRA, which was enacted in 2022, would encourage companies to abandon Europe for the United States.

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According to the survey, 23% of vehicle manufacturers and suppliers are considering relocating production. Under Washington's scheme, new electric vehicle tax credits apply to those with final assembly as well as key inputs made in North America.

An above-average number of mechanical engineering companies and businesses from the chemicals and plastics sectors are also thinking about relocating, the survey shows.

A different DIHK survey showed that 17% of German companies in the U.S. are considering investing more in the country. "The IRA has made building a U.S. plant for electric cars very attractive," Audi Chief Executive Markus Duesmann said. Tesla Inc has scaled back plans to produce batteries at its site in Brandenburg, Germany, and is prioritising cell production in the U.S. because of the IRA.

Stefan Schoenberger, climate and energy expert at Boston Consulting Group (BCG), told Reuters that electricity and gas prices in Europe are likely to be at least twice as high as in the U.S. in the long term. This also attracts investments to the other side of the Atlantic.

"For green energy sources such as green electricity or hydrogen, however, the U.S. and China, Europe's main competitors, have no structural cost advantage," Schoenberger said.

A government official told Reuters that an attractive industrial electricity price was needed to level the playing field. However, this is very expensive and hardly feasible because of EU competition law.

TRADE BARRIERS

German Chancellor Olaf Scholz on Friday will visit the White House, where he is expected to push to put the EU on an equal footing with U.S. neighbours Mexico and Canada in the interpretation of the legislative package.

German Economy Minister Robert Habeck wants to present an industrial electricity price concept in the first half of the year. He is also planning larger and more targeted funding for solar and wind power plants, as well as power cables and power grids.

Trade barriers are increasingly causing problems for German companies operating internationally. Of the companies surveyed, 56% complained about trade barriers, the highest figure since the survey started 18 years ago.

"We clearly see a sad trend toward more protectionism," said Volker Treier, trade chief at the DIHK.

Of the companies surveyed, one in five feels discriminated by local content regulations, such as those included in the U.S. IRA.

Sanctions against Russia and Belarus by the EU and other countries, as well as counter-sanctions in connection with the Russian war in Ukraine, are also creating challenges for more than half of the German companies surveyed.

"Our survey confirms the new reality we are facing since the war of aggression started," Treier said. He forecasts German real export growth of 2.5% in 2023, one percentage point below the average growth during the previous decade.

(Reporting by Christian Kraemer and Maria Martinez; Editing by Tomasz Janowski and Paul Simao)