The World Economic Forum’s final panel held its annual meeting in Davos, Switzerland this past month. The purpose of the annual meeting is to re-affirm the value of dialogue and public-private co-operation, not only to navigate the current crises but to drive long-term system-positive change. This year, the panel concluded that despite fears of the global economy in 2023, the outlook is bright. However, people are still fear certain risks. The problems facing the global economy include the continuous conflict in Ukraine, inflation, trade, and climate change. Lingering impacts from the COVID-19 pandemic, as well as the conflict in Ukraine, have contributed to problems that will continue throughout 2023.
International Monetary Fund Managing Director Kristalina Georgieva stated that the reason for the positive outlook is China’s potential to boost growth, with forecasts projecting growth of 4.4% in 2023. Despite this, China’s re-opening also brings up the risk of inflationary pressure, which, according to Reuters, could contribute to global inflation via heating up global demand and prices for energy.
During the conference, global leaders addressed risks to the global economy, such as the cost-of-living crisis, in 2023. They also expressed their criticisms of these risks, along with responses to the problems of inflation, climate change, and trade. However, the conference was primarily occupied by the debate between the United States and Europe on subsidies for green energy transition and the increasing debt in developing nations.
The U.S. addressed issues of climate change and inflation through the Biden administration’s Inflation Reduction Act (I.R.A.), which uses $369 billion in spending on climate and energy policies. However, according to the Center for Strategic and International Studies, Europeans were perplexed when the I.R.A. was passed; during the conference, E.U. leaders claimed that the act breaches international trade rules, supporting U.S. supply chains by granting tax credits to electric cars made in North America. While these leaders praised U.S. climate action, they described the legislation as “Buy America” measures which “violate World Trade Organization principles, discriminate against companies in the European Union, and risk de-industrializing parts of Europe,” stated the Center for Strategic and International Studies, potentially undermining the trans-Atlantic unity forged in response to Russia’s invasion of Ukraine.
In addition to these risks, French Finance Minister Bruno Le Maire also criticized the subsidy plan on climate change for being incompatible with global efforts.
Despite the potential harm to global green industry and the possibility of a potential trans-Atlantic trade war, U.S. leaders defended the inflammatory Act at the conference. United Nations Special Envoy for Climate Action and Finance Mark Carney stated that European criticism only reflects the pressure other countries face to respond with similar incentives to boost spending in renewable energy. The former U.S. secretary of the treasury, Larry Summers, stated that President Biden’s subsidy plan to support green industries and the European effort on climate change is overdue, and that a subsidy war over climate change is a good thing. However, U.S. leaders’ failure to reform their act in response to European criticisms will create further tensions within the global economy.
Meanwhile, President of the European Commission Ursula von der Leyen stated that her institution is drafting a new law targeting the continent’s green industries, established to compete with the I.R.A., in the hopes of making Europe the home of clean tech and innovation. The new Net-Zero Industry Act will aim to “focus investment on strategic projects along the entire supply chain … and how to simplify and fast-track permitting for new clean tech production sites,” von der Leyen said. The Act also seeks to decrease European dependence on China and drive the green industry abroad.
It is imperative that these leaders find a way to table their conflicts and co-operate. The global economy and the issues plaguing it are problems which leaders should address together, not separately. The I.R.A. may be controversial, but by introducing their own act, the European Union is choosing to compete with the I.R.A. instead of finding resolution. In truth, those at the center of these problems and those contributing to the debate are the ones who are making attempts to resolve the issue. This can make finding answers much harder, as the involved parties become attached to their own solutions.
Debating in a private setting away from the conference may have allowed American and European leaders to reach an agreement that pleases both parties and still fights inflation and climate change. For example, the Inflationary Reduction Act could allow world leaders to focus their full attention on the problems of inflation and climate change. This diplomatic concession of priorities could also ease tensions by making the suggested solutions more multilateral.
Each problem in the global economy requires its own solution, and each risk the leaders addressed requires discussion. By combating these risks first, then the leaders can move on to implement a unified response.