The green trade war dividing the Davos elite

The climate in the Alps has changed this winter, and not just because snow has finally fallen after an unusually warm December for the time of year.

CEOs and government ministers from around the world gather for the annual World Economic Forum (WEF) in Davos, Switzerland, where much of the focus for the past three years has been on how to manage the huge series of shocks that have hit the global economy.

From Wuhan’s wet market to the Kremlin’s insane calculations, the pandemic and war have conditioned a path of record inflation and soaring debt, with a third of the world expected to slip into recession this year.

But there is some light at the end of the tunnel. And as distant as a ski resort packed with world leaders may sound, the WEF is the kind of place to get a sense of whether a three-year storm is abating.

There are some signs that the early signs of rising inflation in the global economy are now beginning to normalize. The supply chains for the parts and ingredients that go into making the products we buy have been repaired after being stuck together during the pandemic.

For example, Elon Musk’s company Tesla attributed its decision to lower the price of its electric cars last week to this shift. The shipping costs tumble. And China’s post-pandemic “grand reopening” — the end of strict zero-Covid lockdowns and restrictions — should in theory help the global economy, though the healthcare costs of widespread infections could be so high that it isn’t.

Around the world, inflation appears high but has peaked. Incredibly, much of Europe has managed to end its dependence on Russian gas within a year by building temporary terminals to process shipped liquefied gas so it does not have to rely on pipelines from Siberia.

However, more recent tensions are also emerging, raising questions about how far inflation will eventually fall and some concerns about where Britain stands in a vastly changed world.

The big shadow here is the threat of a transatlantic green trade war. For example, Joe Biden’s new bill to boost America’s green economy provides £300 billion in subsidies for electric car purchases, but only if they’re primarily manufactured in North America. The Anti-Inflation Law also affects a number of other manufacturing and production sectors and is enticing some European companies to relocate factories to the US. Even fertilizer manufacturers have turned their heads, wondering why European leaders aren’t introducing similar laws.

The US suggests its new legislation aims to compete with China. But EU leaders are furious and ready to respond, potentially with significant subsidies of their own, presumably including “Buy European” clauses.

If the big three trading blocs are trying to subsidize each other, what should “global Britain” do? The ‘globe’ that Britain tried to ‘re-engage’ with after Boris Johnson’s break with the post-Brexit single market is really quite different now.

Would the EU “buy Europe” restrictions also include the UK? The government has raised some concerns in a letter to the White House, but it’s unclear what strategy Britain is pursuing, or if there is one. It’s not just about low-carbon manufacturing either. A similar dynamic – an attempted split between the US and the EU – is evident in recent moves to relocate microchip production from East Asia.

Davos’ new shared backdrop to the global economy could have profound implications for how much things cost and where they’re made. It is an exact reversal of the decades-long consensus at the World Economic Forum. There is a lot on offer here.

Finally, many business leaders seem to have spent their Christmas holidays shocked by the cost-saving potential of the new ChatGPT 3 artificial intelligence platform. There is a school of thought that OpenAI’s next iteration of this technology – ChatGPT 4 – could be so disruptive that it will trigger a global economic shock. It will be a quantum leap for technology, but at the cost of laying off millions of existing jobs.

With war in Europe, the reopening of China and a long-awaited technological revolution, political and investment decisions will be made in Davos this week that could change the direction of the global economy and profoundly affect us all.