The Silent Trade War: Understanding the Global Subsidy Race in Clean Tech & Semiconductors

The Great Subsidy Race: How $2 Trillion in Clean Tech & Chip Incentives is Redrawing the Global Economic Map

Introduction – Why This Matters

We are witnessing a fundamental transformation in global economic governance. The era of hands-off neoliberalism and pure market-driven globalization is giving way to a new paradigm of strategic, state-directed industrial policy. At the heart of this shift is a multi-trillion-dollar, high-stakes competition—a “silent trade war”—where nations are deploying massive subsidies to dominate the industries that will define the 21st century: clean energy technologies and advanced semiconductors.

For curious beginners, this represents a dramatic change in how governments interact with the economy, reminiscent of 20th-century space races but focused on earthly technological supremacy. For professionals needing a refresher, it’s a complex web of overlapping policies—the US Inflation Reduction Act (IRA), the CHIPS and Science Act, the EU’s Green Deal Industrial Plan (GDIP) and Net-Zero Industry Act (NZIA), and China’s relentless state support—that is actively distorting investment flows, forcing corporate relocation, and rewriting global supply chain maps in real-time.

In my experience advising multinationals on location strategy, the past two years have been a frenzy. What I’ve found is that executives who view these subsidies merely as a short-term cash grab are missing the strategic forest for the trees. The real insight is that these policies are permanent structural magnets designed to pull entire industrial ecosystems—from raw materials to R&D to final assembly—within national borders or friendly alliances. A battery manufacturer isn’t just choosing between Michigan and Saxony based on a grant; they are choosing which geopolitical bloc’s economic and security orbit to join for decades.

This subsidy race is not just about economics; it’s about national security, climate resilience, and geopolitical influence. The winners will control the foundational technologies of the digital and green age, while the losers risk technological dependency and economic vulnerability. Understanding this race is essential for any business operating globally, any investor allocating capital, and any citizen wondering about the future of jobs and prosperity in their country.

Background / Context: The Retreat from Hyper-Globalization

To understand the subsidy race, we must first understand what it’s reacting against. The period from the 1990s to the late 2010s was characterized by “hyper-globalization.” The dominant orthodoxy, led by institutions like the WTO, advocated for minimal state intervention, open borders for trade and investment, and comparative advantage. Supply chains became globally dispersed, optimized for just-in-time efficiency and lowest cost. This model delivered lower consumer prices and lifted hundreds of millions out of poverty, primarily in Asia.

However, it also created profound vulnerabilities and political backlashes:

1. Geopolitical Concentration: Critical industries became concentrated in geopolitically sensitive locations. Over 90% of the world’s most advanced semiconductors came from Taiwan. Over 80% of solar panel production was in China. Over 60% of rare earth processing was Chinese-controlled.
2. Systemic Shocks: The COVID-19 pandemic and Russia’s invasion of Ukraine exposed the fragility of elongated supply chains, causing shortages of everything from microchips to fertilizer.
3. Climate Imperative: The urgent need to decarbonize the global economy created a massive new demand for clean technologies, but the existing supply chain concentration meant the energy transition itself risked deepening dependency on a single actor: China.
4. Domestic Discontent: In the US and Europe, the offshoring of manufacturing, particularly in strategic industries, was linked to regional economic decline, job losses, and political instability.

The convergence of these factors—geopolitical rivalry, supply chain insecurity, climate urgency, and domestic politics—created a perfect storm. Governments abandoned the rulebook of the old global order and embraced a new logic: strategic autonomy and resilience. If the market would not, on its own, create diversified, secure, and domestic capacity in these critical sectors, then the state would use its financial and regulatory power to make it happen. The subsidy race was born.

Key Concepts Defined

• Industrial Policy: Government-led, strategic efforts to shape and develop specific sectors of the economy deemed nationally important, using tools like subsidies, tax credits, trade protection, and R&D support.
• Subsidy Race / “Subsidy War”: A competitive dynamic where multiple nations escalate their offerings of financial incentives to attract or retain industrial capacity, often leading to bidding wars and potential inefficiencies.
• Friend-shoring / Ally-shoring: The practice of relocating supply chains to or sourcing from countries that are geopolitical allies, prioritizing security and shared values over pure cost optimization.
• Strategic Autonomy: A nation’s goal to maintain independent capacity in critical sectors (defense, energy, technology) to avoid coercion or vulnerability from foreign actors.
• Inflation Reduction Act (IRA) of 2022 (USA): A landmark $369 billion (with potential total impact near $1 trillion) climate and energy package. Its core mechanism is production tax credits (PTCs) and investment tax credits (ITCs) for domestic manufacturing of clean energy components (batteries, solar, wind, electrolyzers) and consumer incentives (like the $7,500 EV tax credit with domestic content rules).
• CHIPS and Science Act of 2022 (USA): Provides $52.7 billion in subsidies and tax credits for semiconductor research and manufacturing in the United States, plus over $200 billion for broader scientific R&D. It explicitly aims to counter China’s rise in tech.
• EU Green Deal Industrial Plan (GDIP) & Net-Zero Industry Act (NZIA): Europe’s response to the IRA. It aims to simplify regulation, accelerate permitting, boost skills, and—crucially—allow more flexible state aid for green tech projects. It sets a target for the EU to produce 40% of its own clean tech needs by 2030.
• Temporary Crisis and Transition Framework (TCTF): An EU state aid rule relaxation that lets member states match subsidies offered by foreign governments (like the IRA) to prevent investment from fleeing to the US.
• Local Content Requirements (LCRs): Rules mandating that a certain percentage of a product’s value must be produced locally to qualify for subsidies or market access. A central and controversial feature of the IRA.
• Critical Raw Materials (CRMs): Minerals and metals essential for clean energy, defense, and digital technologies (e.g., lithium, cobalt, rare earths). Securing supplies is a primary goal of the subsidy race.
• “Crowding Out”: An economic risk where massive public subsidies distort private investment, inflate costs (e.g., for engineering talent), and may fund projects that are not commercially viable without perpetual government support.

How It Works: The Anatomy of the Modern Subsidy (A Comparative Step-by-Step)

The new subsidies are not simple grants. They are complex, performance-based architectures.

Step 1: Identify the Strategic Sector & Vulnerability.
Governments conduct audits (like the US supply chain reviews of 2021) to pinpoint over-dependencies. The targets are clear:

• Semiconductors: Advanced logic chips (<10nm), memory, and packaging.
• Clean Energy: Battery cells and materials, solar photovoltaic (PV) supply chain (polysilicon, wafers, cells, modules), wind turbine components, electrolyzers for green hydrogen.
• Critical Minerals: Lithium, cobalt, nickel, graphite, rare earth elements for permanent magnets.

Step 2: Design the Incentive Arsenal.
Policies use a mix of “carrots”:

• Direct Production Subsidies/Tax Credits: The IRA’s 45X credit pays manufacturers per unit of output (e.g., $35 per kWh of battery cell, $10 per kWh of battery module). This directly lowers the cost of making something in the US versus elsewhere.
• Investment Tax Credits & Grants: Upfront support for capital expenditure (CapEx). The CHIPS Act provides direct grants covering 5-15% of a fab’s cost.
• Consumer Demand-Pull Incentives: The IRA’s EV tax credit creates guaranteed demand, but only for vehicles that meet stringent battery component and critical mineral sourcing rules, thereby forcing automakers to reshape their global supply chains.
• Loan Guarantees & Offtake Agreements: Governments de-risk projects by guaranteeing loans (DOE Loan Programs Office) or committing to purchase future output.

Step 3: Attach Strategic Conditions.
This is where industrial policy meets geopolitics. Subsidies come with strings:

• Local Content/Production Requirements: To get the full IRA EV credit, a percentage of battery components and critical minerals must be sourced from the US or a Free Trade Agreement (FTA) partner. This explicitly excludes China, Russia, and other “foreign entities of concern.”
• Worker & Community Standards: Many programs require paying prevailing wages, using registered apprenticeships, and investing in disadvantaged communities.
• Technology Sharing & “Clawbacks”: The CHIPS Act includes provisions to claw back funds if recipients engage in certain joint research or technology licensing with entities of concern (i.e., China).

Step 4: Create a “Matching” Dynamic (The Race Accelerates).
When the US passed the IRA, it created a negative externality for the EU and other allies: the risk of investment flight. The EU responded by relaxing its strict state aid rules via the TCTF, allowing Germany and France to offer massive subsidies to companies like Northvolt (batteries) to “match” what the US offered. This, in turn, creates resentment within the EU from smaller members without deep fiscal pockets, and pressures other Asian allies like South Korea and Japan to up their own offers. The race escalates.

Step 5: Monitor, Enforce, and Adapt.
Agencies like the US Department of the Treasury issue complex guidance on eligibility (e.g., defining “foreign entity of concern”). Companies navigate these rules, and governments adjust them in response to industry feedback and geopolitical developments. The system is dynamic, not static.

Why It’s Important: The Stakes of the Race

The implications of this subsidy race are vast and will shape the coming decades:

1. For the Global Economy & Trade System:

• Fragmentation & “Bloc-ification”: The world is dividing into competing subsidy spheres: a US-centric bloc (leveraging FTAs with allies), the European bloc, and a China-centric bloc. This undermines the multilateral, rules-based trading system and could lead to lower efficiency and higher costs globally—a phenomenon termed “slowbalization” or “fragmegration.”
• Rise of Managed Trade: Trade flows will be increasingly dictated by subsidy rules and geopolitical alignment rather than pure comparative advantage. The “friend-shoring” of battery mineral processing or chip packaging is a direct outcome.
• Inflationary Pressures: Competing for limited resources (skilled labor, engineering capacity, critical minerals) and subsidizing capital-intensive industries could exert long-term upward pressure on costs.

2. For the Clean Energy Transition:

• Acceleration & Scale: There is no doubt the massive subsidies are turbocharging investment. The US alone saw over $300 billion in announced clean energy manufacturing investments in the first year of the IRA. This scale is necessary to meet climate goals.
• Risk of “Green Protectionism”: By favoring domestic production, these policies could make clean technologies more expensive in developing countries, slowing the global transition. They also risk triggering retaliatory measures and trade disputes that could derail cooperation.
• Diversification of Supply: Success would mean a more resilient, geographically diversified supply chain for solar, batteries, and wind, reducing the risk of climate action being held hostage by geopolitical tensions.

3. For Businesses & Investors:

• The Great Corporate Dilemma: Multinationals face an impossible trilemma: optimize for cost (often pointing to Asia), optimize for subsidy access (pointing to the US/EU), and manage geopolitical risk. Many are pursuing a “China+1” or dual-supply-chain strategy, adding massive complexity and cost.
• Winners and Losers: Clear winners are equipment suppliers, engineering firms, and construction companies building new factories. Potential losers are incumbent producers in non-aligned countries and companies that fail to navigate the complex subsidy paperwork.
• Capital Allocation Distortion: Trillions in capital are being redirected based on policy rather than pure market signals. This could lead to misallocation and stranded assets if technologies evolve faster than subsidized factories can adapt.

4. For Geopolitics & National Security:

• The Decoupling (or De-risking) from China: This is the overarching geopolitical driver. The US-led subsidy push is a core component of a strategy to build a competing, allied industrial ecosystem that reduces dependence on China.
• The “Chip War” Front & Center: Semiconductors are the “oil of the 21st century.” Subsidies for fabs in Arizona, Ohio, and Dresden are the industrial arm of a technological cold war. Control over advanced chips is seen as existential for military and economic superiority.
• Alliance Politics: Subsidy policies are strengthening certain alliances (US-EU-Japan-South Korea-Taiwan on chips) while straining others (EU internal cohesion, US relations with some developing resource nations).

Real-Life Example: The Battery Gigafactory Decision.

• Before: A Korean battery maker, SK On, would likely build its next plant in China (lowest cost, established supply chain) or Eastern Europe (proximity to EU auto customers).
• After IRA/GDIP: SK On announces a $2.6 billion joint venture with Ford to build a plant in Kentucky and a $2.5 billion plant in Georgia. Why? The 45X production tax credit of $35/kWh for cells makes US production cost-competitive with China. Simultaneously, it expands in Hungary with support from EU state aid to serve European automakers. The single global supply chain is now two regional ones, replicated at great expense, driven by subsidies.

Sustainability in the Future: Can This Model Endure?

Is this subsidy-driven industrial policy sustainable, or is it a sprint that will end in a fiscal crash or trade collapse?

• Fiscal Sustainability: The US and EU are deploying deficit spending to fund these ambitions. The long-term sustainability depends on whether subsidized industries achieve commercial viability and generate enough tax revenue and high-quality jobs to justify the initial outlay. There is a risk of creating “subsidy addicts”—industries that cannot survive without perpetual government support.
• Technological Lock-in: Subsidies often target today’s dominant technologies (silicon PV, lithium-ion batteries). This could stifle innovation in next-generation alternatives (perovskite solar, solid-state batteries) that don’t have a powerful lobby or mature supply chain to capture credits.
• Global Equity & Just Transition: The subsidy race is largely a rich-world phenomenon. Developing countries with critical mineral resources fear being relegated to mere raw material suppliers, locked out of the high-value manufacturing that subsidies attract. This could exacerbate global inequalities and undermine the principle of a “just transition.” Ensuring this doesn’t happen is a core concern explored in discussions within our Nonprofit Hub.
• The Need for International Coordination: The current path is one of competition. A more sustainable future would involve coordinated investment among allies to avoid wasteful duplication and ensure global public goods (like climate tech) are deployed everywhere. This would require a new international framework, perhaps through a “Climate Club” or reformed WTO rules for green subsidies. The path from destructive race to constructive competition is narrow.

Ultimately, sustainability hinges on whether this model can evolve from a zero-sum scramble for industrial capacity into a positive-sum framework for accelerating global decarbonization while ensuring shared prosperity and security. The alternative is a fractured, inefficient, and conflict-prone global economy.

Common Misconceptions

1. Misconception: “This is just a return to old-fashioned, inefficient protectionism.”
   • Reality: While there are protectionist elements (like LCRs), the new industrial policy is more sophisticated. It’s technology-forward and mission-oriented, focused on creating new markets and ecosystems (e.g., clean hydrogen) rather than just shielding dying industries. It couples subsidies with innovation agendas (e.g., CHIPS Act R&D funding).
2. Misconception: “Subsidies automatically lead to inefficiency and ‘white elephants’.”
   • Reality: This is a key risk, but the design matters. Production-linked tax credits (like the IRA’s 45X) are more efficient than upfront capital grants because they reward actual output, not just promises. They align government and corporate incentives toward operational success.
3. Misconception: “China is the only one that subsidizes; the West is just catching up.”
   • Reality: While China’s state-led model is comprehensive and long-standing, the scale and nature of the Western response is unprecedented in the modern era. The US and EU are now deploying subsidies that are more transparent but also explicitly geopolitical and exclusionary in their design, marking a significant policy shift.
4. Misconception: “This will make everything (EVs, solar panels) more expensive for consumers.”
   • Reality: In the short term, possibly, as supply chains are rebuilt in higher-cost locations. However, the goal is to drive down costs through scale, innovation, and competition within the allied bloc. The massive demand pull from subsidies could ultimately achieve lower prices than a concentrated, potentially monopolistic supply chain prone to volatility.
5. Misconception: “It’s only about manufacturing jobs.”
   • Reality: It’s about ecosystem control. The goal is to capture the entire value chain: IP, R&D, engineering, specialized materials, advanced machinery, and high-value services. Manufacturing is the anchor, but the true prize is technological leadership and the standards-setting power that comes with it.

Recent Developments (2024/2025)

• IRA Implementation in Full Swing: The US Treasury has issued all major guidance, including the contentious “foreign entity of concern” (FEOC) rules that effectively bar Chinese companies or those with significant Chinese ownership from participating in the battery supply chain for eligible EVs from 2025 onward. This is causing a frantic scramble by automakers to audit and reconfigure their supply chains.
• EU Response Consolidates: The Net-Zero Industry Act (NZIA) was formally adopted, setting binding targets for domestic manufacturing capacity. The European Sovereignty Fund (a smaller-scale answer to complaints about internal inequality in subsidy power) has been launched. More importantly, the European Commission has opened several anti-subsidy investigations into Chinese wind turbine and electric vehicle makers, signaling a more aggressive trade defense posture.
• China’s Counter-Move: “New Productive Forces”: China has unveiled its new ideological framework, emphasizing “new productive forces”—high-tech innovation in areas like EVs, batteries, and commercial aerospace. It is doubling down on state support while also seeking to circumvent Western barriers by investing in manufacturing in friendlier countries like Morocco, Hungary, and Mexico (so-called “transshipment”).
• Resource Nationalism Intensifies: Critical mineral-rich countries are not passive observers. Indonesia has banned nickel ore exports to force investment in domestic smelting. Chile is moving toward partial nationalization of its lithium industry. These nations are using their resource leverage to demand a greater share of the value chain, adding another layer of complexity to the race.
• The “Chip War” Escalates: The US has further tightened export controls on advanced semiconductor manufacturing equipment to China. In response, China is pouring an estimated $150 billion into its own semiconductor self-sufficiency drive, creating a parallel, decoupled tech ecosystem.

Success Stories & Strategic Responses

• The US “Battery Belt” Boom: A clear success story of the IRA is the rapid emergence of a US battery supply chain. From virtually nothing, over 1,000 GWh of announced battery manufacturing capacity is now planned by 2030 across states like Georgia, Michigan, Kentucky, and Tennessee. Companies like Panasonic, LG Energy Solution, and CATL (through licensing deals with Ford) are investing billions.
• Intel’s Geopolitical Pivot: Intel, once a symbol of globalized tech, is now a prime beneficiary and instrument of the CHIPS Act. It is building massive “mega-fab” complexes in Ohio and Arizona, positioning itself not just as a commercial player but as a national champion for US and allied semiconductor sovereignty. Its foundry services business is explicitly marketed as a “geopolitically stable” alternative to Taiwan’s TSMC.
• Northvolt’s “Subsidy Arbitrage”: The Swedish battery startup brilliantly played the subsidy race. It secured its foundational capital with offtake agreements from BMW and Volkswagen, then used the promise of a US gigafactory to secure better terms from the German government for its flagship plant in Skellefteå. It is now a €12+ billion company, a European champion built on strategic government partnerships.
• Australia’s Critical Minerals Strategy: Rather than trying to subsidize end-product manufacturing, Australia is focusing its incentives on the mid-stream: building refining and processing capacity for its vast lithium, cobalt, and rare earth resources. This “value-add” strategy aims to capture more economic benefit and become an indispensable, reliable supplier to the US and EU blocs, avoiding the raw-material-exporter trap.

Real-Life Examples & Case Studies

Case Study: The Electric Vehicle Supply Chain Re-wiring.

• The Problem (2020): A typical US-assembled EV might have a battery cell from China, containing cathodes made in China from lithium processed in China from Australian ore. The motor’s rare earth magnets were entirely sourced and processed in China.
• The IRA-Induced Transformation (2025):
  1. Cell Manufacturing: LG and SK build gigafactories in the US to supply GM and Ford.
  2. Cathode/Anode Active Material: Companies like BASF and POSCO Future M build plants in the US to supply those gigafactories.
  3. Critical Minerals Processing: Partnerships emerge. For example, GM invests in Controlled Thermal Resources to extract lithium from California’s Salton Sea. Ford signs a deal with Liontown Resources for Australian lithium, but with plans for midstream processing in a US-aligned country.
  4. The Chinese Link: Automakers conduct forensic supply chain audits. Any company with >25% ownership by a “foreign entity of concern” is excluded from the tiered supply chain for the US market. This forces joint ventures to be unwound or restructured.

*This before-and-after scenario shows a complete re-architecting of a multi-tier supply chain within 5 years, driven entirely by subsidy rules. It’s a logistical and corporate governance nightmare, but it’s happening.*

Case Study: The Solar PV “Trade Deflection” Dilemma.

• Situation: US imposes anti-dumping duties on Chinese solar panels. The IRA offers generous tax credits for US-made solar components.
• Chinese Counter: Chinese solar giants (Jinko, LONGi, Trina) announce massive investments in Southeast Asia (Vietnam, Thailand, Malaysia) for wafer, cell, and module production.
• The Loophole & The Closure: For years, modules assembled in Southeast Asia from Chinese parts could be imported to the US duty-free. In 2024, the US Department of Commerce began enforcing stricter rules to prevent this circumvention. Simultaneously, US companies like First Solar (which makes unique thin-film panels) and Hanwha Q CELLS are expanding US production with IRA support.
• Outcome: A bifurcated market: a higher-cost, “domestic content” US supply chain serving the US market (supported by IRA credits), and a global supply chain still dominated by China and Southeast Asia serving the rest of the world. This increases costs for the US energy transition but achieves the geopolitical goal of creating an alternative manufacturing base.

Conclusion and Key Takeaways

The global subsidy race for clean tech and semiconductors is the defining economic story of our time. It marks the end of one era of globalization and the fraught, uncertain birth of another. It is a story of necessary ambition—to address climate change and secure foundational technologies—colliding with the harsh realities of geopolitics and economic rivalry.

Key Takeaways:

1. This is Permanent, Not Cyclical: Do not expect a return to the pre-2020 status quo. Strategic industrial policy is now a core function of major economies. Businesses must build long-term strategies that account for subsidy landscapes and geopolitical alignment as critical factors.
2. Efficiency is Being Redefined: The mantra is no longer “lowest cost at any point.” The new trifecta is Resilience, Security, and Sustainability. Supply chains will be judged on their ability to withstand shocks, their alignment with geopolitical blocs, and their carbon footprint, even if this comes at a higher monetary cost.
3. Complexity is the New Normal: Navigating the web of subsidies, local content rules, export controls, and “foreign entity” definitions requires dedicated internal expertise or specialized consultants. Compliance is a strategic function.
4. Innovation Remains the Ultimate Prize: While subsidies are focused on today’s manufacturing, the long-term winners will be those who also dominate the next generation of technology. R&D ecosystems (supercharged by the CHIPS Act and Horizon Europe) are as important as factory floors.
5. The World is dividing into “Spheres of Provision”: We are moving toward a world where the technology you use, the car you drive, and the energy you consume will be shaped by which geopolitical bloc’s subsidized industrial ecosystem you are connected to.

For companies and individuals, the imperative is to develop geopolitical fluency. Understanding the motives and mechanisms of the US, EU, and China is no longer the domain of political scientists; it is a core business skill. The silent trade war, fought with tax credits and grants, will determine which nations thrive in the coming century and which find themselves dependent and vulnerable.

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FAQs (20–25 detailed Q&A)

1. What’s the difference between the IRA and the CHIPS Act?
The IRA is primarily a climate and energy law that uses tax credits to stimulate demand and production of clean energy technologies across the entire economy. The CHIPS Act is a technology and national security law focused specifically on semiconductors, providing direct subsidies for manufacturing and massive funding for related R&D.

2. Can European companies benefit from the US IRA?
Yes, absolutely. The IRA’s subsidies are generally available to any company building qualifying facilities in the United States, regardless of ownership nationality. This is why European automakers (VW, Mercedes) and battery makers (Northvolt) are investing billions in the US. The subsidies are tied to the location of production, not the corporate headquarters.

3. Is the EU’s response as strong as the US IRA?
It’s different. The EU lacks a centralized fiscal treasury, so it cannot write a single $369 billion check. Its strength lies in regulation (the Green Deal) and its ability to coordinate and relax state aid rules for member states. The result is a more fragmented but still potent response, with Germany and France leading with large national subsidies.

4. How does this affect developing countries?
The impact is mixed. Negatively, they risk being cut out of high-value manufacturing and facing higher costs for imported clean tech. Positively, they may attract “friend-shoring” investment for specific parts of the supply chain (e.g., mineral processing in Africa, component assembly in Southeast Asia) and benefit from increased competition among major powers for their resources and allegiance.

5. What are “local content requirements” and why are they controversial?
LCRs mandate that a specific percentage of a product’s value must originate locally to qualify for a subsidy. They are controversial because they discriminate against foreign producers, potentially violate WTO trade rules, can raise costs, and may trigger retaliatory measures from other countries.

6. What is a “foreign entity of concern” (FEOC) under the IRA?
This is a crucial definition. It includes entities owned or controlled by the governments of China, Russia, Iran, or North Korea. From 2024/2025, EVs containing any battery components manufactured or assembled by an FEOC are ineligible for the tax credit. This is the most direct “decoupling” rule.

7. Are these subsidies causing inflation?
They are contributing to sector-specific inflation in areas like industrial construction, engineering salaries, and critical mineral prices due to surging demand. However, their overall impact on broad consumer price inflation is debated and may be offset in the long run by increased supply and technological progress.

8. What happens if a company takes a subsidy but then moves production later?
Most subsidy agreements include “clawback” provisions. For example, the CHIPS Act allows the government to recoup funds if a company engages in certain expanded semiconductor manufacturing in China within 10 years. These are legally binding commitments.

9. How can small and medium-sized enterprises (SMEs) participate?
While the headlines focus on gigafabrics, there are opportunities for SMEs as suppliers in the new industrial ecosystems (e.g., making specialized tooling, chemicals, or providing engineering services). Governments often set aside portions of funding for smaller businesses. Diligent research into program details is key.

10. Is this just a US vs. China story?
No, it’s multipolar. The EU is a major, independent player with its own ambitions. Japan and South Korea are key allies with their own advanced industries and subsidy programs. India has launched its own Production Linked Incentive (PLI) schemes. Many other nations are active participants or arenas of competition.

11. What’s the risk of overcapacity?
Significant. If every region builds massive capacity for batteries, solar, and chips based on optimistic demand forecasts and subsidy-induced momentum, a glut could occur, leading to price crashes, company failures, and wasted capital. This is a classic risk of coordinated industrial policy without global coordination.

12. How does this relate to climate goals?
The positive case: Massive subsidies accelerate deployment, drive down costs through scale, and create political constituencies for the energy transition. The negative case: Protectionism slows global deployment, trade fights distract from cooperation, and inefficient location of production increases the carbon footprint of manufacturing.

13. What role does the WTO play now?
Its role is greatly diminished. The major powers are effectively bypassing or ignoring WTO rules that prohibit discriminatory subsidies. The WTO dispute system is paralyzed. The organization is struggling to create new rules for the 21st century on issues like digital trade and environmental goods.

14. Are consumers in the US/EU actually buying the subsidized products?
Early data is strong. In the US, EV sales hit records in 2023/2024, with the IRA tax credit being a clear driver. Heat pump and rooftop solar installations have also surged. The link between production subsidies and consumer incentives is creating a powerful market-pull effect.

15. What’s the single biggest challenge for companies?
Supply chain traceability. To prove compliance with FEOC or local content rules, companies need unprecedented visibility into their multi-tier supply chains, down to the mine or processing plant. This requires new digital systems and audits, and is a monumental task.

16. How long will these subsidies last?
Many key IRA tax credits extend through 2032. CHIPS Act funding is being disbursed over ~5 years. However, the political consensus suggests that even when these specific laws expire, some form of strategic industrial support will remain, though its focus may shift.

17. Is this leading to a “brain drain” from other industries?
Yes, there are reports of talent (engineers, project managers) being pulled from traditional sectors (oil & gas, conventional manufacturing) into the booming clean tech and semiconductor sectors, driving up salary costs and creating shortages elsewhere.

18. Can these policies be reversed by a future election?
It’s possible, but increasingly difficult. In the US, reversing the IRA would require an act of Congress, which is challenging. More likely, a future administration could slow-walk implementation or change guidance. In the EU, the Green Deal is a central pillar of the Commission’s identity. Major reversal is politically costly due to the climate consensus and now-entrenched industrial interests.

19. What should an investor look for in this environment?
Look for companies that are: 1) Essential links in the new, geopolitically aligned supply chains (e.g., specialized materials producers). 2) Enablers of the construction boom (engineering & construction firms). 3) Technology leaders who can thrive regardless of subsidy shifts. Avoid companies overly reliant on a single, contested geography or those stuck in the middle of the decoupling.

20. How does this impact traditional energy companies (oil & gas)?
They are adapting. Many are using their project management expertise and cash flow to invest in carbon capture, hydrogen, and geothermal technologies that also qualify for IRA credits. They are becoming “energy companies” rather than just hydrocarbon companies, partly driven by the new subsidy landscape.

21. What is “friendshoring” in practice?
A US automaker, instead of buying battery-grade lithium from China, signs a 10-year offtake agreement with a lithium project in Canada or Australia (FTA partners). It may also help finance a lithium hydroxide conversion plant in Quebec to ensure the material meets IRA sourcing rules.

22. Are there any global forums trying to manage this competition?
The G7 has discussed coordinated approaches. The Indo-Pacific Economic Framework (IPEF) has a pillar on supply chain resilience. However, no forum has succeeded in creating binding rules to prevent a subsidy race. The dominant mode remains competitive, not cooperative.

23. How does this affect the tech sector beyond hardware?
It creates a divide. Cloud and AI software remain global, but their physical underpinnings (data center chips, power) are increasingly subject to these geopolitical and industrial policy forces. Access to advanced chips for AI training is now a national security issue, affecting where and how tech companies can operate.

24. What’s the environmental impact of building all these new factories?
Substantial. The “green” paradox: building gigafactories and semiconductor fabs consumes huge amounts of energy, water, and concrete. Ensuring they are powered by clean energy and designed for circularity (recycling, water reuse) is a critical challenge to ensure the transition is genuinely sustainable.

25. Where can I find reliable, updated information on these policies?

• US: Department of Energy (DOE) Loan Programs Office, Treasury IRA guidance pages, CHIPS.gov.
• EU: European Commission Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW).
• Analysis: Think tanks like the Peterson Institute for International Economics (PIIE), Centre for European Reform (CER), and the Rhodium Group provide excellent, non-partisan analysis.
• For a broader context on business strategy in volatile times, explore World Class Blogs.

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About Author

Sana Ullah Kakar is a Global Political Economy Strategist with 15 years of experience at the intersection of government policy, corporate strategy, and international finance. Having advised Fortune 500 companies on navigating trade wars, sanctions, and industrial policy shifts from Washington to Brussels to Beijing, they provide a clear-eyed analysis of how geopolitical forces reshape business realities. They contribute regularly to World Class Blogs, translating complex global affairs into actionable insights. Connect with us via our Contact Us page.

Free Resources

• IRA Tax Credit Calculator & Guide: Interactive tools from think tanks like the Bipartisan Policy Center.
• CHIPS Act Incentives Application Portal: CHIPS.gov for official guidelines.
• EU Funding & Tenders Portal: The central database for EU grants and subsidies.
• Global Trade Alert Database: Tracks subsidies and protectionist measures worldwide in near real-time.
• Critical Raw Materials Alliance (CRMA) Reports: Analysis on mineral supply chains.
• For understanding the partnership models essential to navigate this new landscape, see Sherakat Network’s guide to Strategic Alliances.
• For insights into the technological innovation driving these sectors, explore our Technology & Innovation category.

Discussion

The floor is yours. Do you see the subsidy race as a necessary catalyst for the energy transition and security, or a dangerous slide into protectionism that will ultimately slow progress and increase costs? Is your industry or company being directly impacted? What strategies are you employing to adapt? Share your perspectives, challenges, and questions below. Let’s dissect the most significant economic shift of our generation.