How to defend critical technologies, keep markets open, and win the race for capacity—without bankrupting the treasury
I. The new map (what changed)
- Tariff shields spread. In 2024 Washington raised Section 301 tariffs on an array of Chinese products—EVs to 100%; several clean‑tech inputs and chips higher—while tightening de minimis loopholes used by e‑commerce platforms. Brussels, after a year‑long probe, imposed definitive countervailing duties on Chinese EVs. Expect more targeted, case‑based actions.
- Export controls bit—and ripostes followed. The US tightened the China high‑end chip rule(Oct 2022/Oct 2023/Apr 2024) and refined licensing pathways in late‑2024; the Netherlands further restricted sales by ASML. Beijing retaliated with export controls on gallium, germanium and related materials, squeezing inputs.
- “Outbound” screening arrived. America’s Outbound Investment Security Program took effect January 2, 2025; the EU recommended a 15‑month outbound risk review for advanced tech, a prelude to possible EU‑level rules.
- Carbon walls go up, slowly. The EU’s CBAM runs transitional reporting (2023–25) and charges start in 2026. It will shape steel, cement and other resource‑heavy trade even if others do not copy it.
- Inputs rose to strategy. The EU’s Critical Raw Materials Act hard‑codes 2030 targets—10% extraction, 40% processing, 25% recycling, ≤65% dependence on any one third country—and partners broadened the Minerals Security Partnership to mobilise offtakes and finance.
- The WTO’s safety net frayed. MC13 promised dispute‑settlement reform; the Appellate Body remains paralysed. In the interim, more than 50 members use the MPIA arbitration workaround (the UK joined in 2025). Security exceptions are being invoked more often—raising the stakes for narrow, evidence‑based measures.
II. Five principles to avoid a subsidy war
- Security: narrow the aperture, widen the coalition. Focus controls on genuine chokepoints (advanced lithography, high‑bandwidth AI accelerators, secure compute). Default to multilateral or minilateral measures with licensing pathways; over‑broad national actions invite copycats and retaliation.
- Trade lanes: make “trusted” faster and cheaper. Expand AEO/CTPAT mutual recognition so low‑risk shipments benefit from fewer inspections and priority lanes, while high‑risk flows face the friction. That is a better deterrent than blanket tariffs.
- Investment: buy minutes and megawatts, not headlines. Offer predictable permits and firm, clean power to all comers that meet security and disclosure standards, instead of escalating chequebook bids. (See our earlier “minutes & megawatts” playbooks.) Speed beats subsidies.
- Climate: tax carbon, not flags. Where carbon pricing exists, rely on CBAM‑style border adjustment not origin‑based tariffs. It rewards cleaner producers regardless of nationality and blunts “overcapacity” complaints.
- Rules: litigate again. Where politics allow, commit to MPIA appeals or other agreed arbitration, and publish the evidence base for trade‑remedy cases (injury, causation, subsidy). This is the cheapest way to keep the system open.
III. The toolkit (what to do on Monday)
1) Build Input Security Compacts instead of copy-paste subsidies
- Join and use the Minerals Security Partnership: co‑finance mines, refining and recycling with offtake contracts; publish gap‑to‑goal tables against CRMA‑style benchmarks.
- Stand up price‑stability CfDs for critical minerals to crowd in private capital; link eligibility to environmental & labour standards and disclosure of state support.
2) Narrow, allied export controls + licence corridors
- Keep the China chip rule focused on compute thresholds and tool lists; negotiate Validated End‑Userexpansion for secure data‑centre ecosystems so allied commercial demand is not collateral damage. Coordinate with the Netherlands/Japan so ASML/Nikon rules remain aligned.
- Require human‑in‑the‑loop risk assessments for additions to control lists; sunset review every 18–24 months.
3) Outbound screening with safe harbours
- Copy the US model: prohibit narrow (e.g., funding PRC sub‑7nm logic, AI training chips, quantum tied to military end use); notify broader categories; exempt passive index funds and routine services. The EU’s 2025 recommendation offers a starting calendar.
4) Trusted‑trade lanes that actually move
- Conclude AEO mutual‑recognition deals (EU, US, Japan, UK already recognise one another). Give fee rebates, inspection priority and data‑sharing dashboards to AEO shipments. Tie benefits to supply‑chain forced‑labour due diligence.
- Fix de minimis: apply tariff‑eligibility and data requirements to small parcels subject to trade remedies or Section 301/232; mandate 10‑digit HTS and known‑shipper IDs. This dulls tariff evasion while sparing legitimate micro‑commerce.
5) Use remedies, not broad wars
- Prefer countervailing/anti‑dumping cases with transparent evidence (as in the EU’s EV decision) over across‑the‑board tariff hikes. Publish non‑confidential case files; allow price undertakings that keep supply available.
- Police anti‑circumvention surgically (e.g., US solar after the 2024 moratorium), with clear certification paths to compliance.
6) Carbon clubs beat tariff volleys
- If you price carbon, link with partners and extend CBAM‑style adjustments; if you don’t, use product standards (embedded‑carbon disclosure) with mutual recognition pathways for clean producers everywhere.
7) Standards and tech alliances
- Use the EU‑US Trade & Technology Council and IPEF Supply Chain Agreement to lock‑in testing and conformity MRAs, common data schemas, and emergency logistics protocols. These are low‑cost, high‑impact alternatives to chequebook contests.
8) Procurement and subsidies: outcome‑priced, time‑limited
- Retire open‑ended “jobs” multipliers. Pay for MW connected, tonnes decarbonised, uptime delivered, or units shipped—and cap per‑project awards. The EU’s CISAF shows how to channel state aid toward clean‑industry outcomes with guardrails.
- Ban cross‑border bidding wars with a Most‑Favoured‑Subsidy clause inside trusted‑partner pacts: if you top up for one, offer equivalent terms to others—disincentivising escalation.
9) Security exceptions: use the WTO off‑ramp sparingly
- Where you must invoke GATT XXI, publish the national‑security rationale and proportionality analysis; where possible, channel disputes into MPIA appeals to rebuild predictability.
IV. Country dials (same logic, different settings)
United States
- Shift from tariff breadth to remedy depth. Use 301/232 sparingly; let targeted CVD/AD and de minimis reform do the work.
- Outbound rules: maintain narrow prohibitions + licence corridors; sharpen Validated End‑User pathways to keep allied compute trade open.
- Allied lanes: expand AEO MRAs and publish a trusted‑shipper leaderboard for priority processing.
European Union/UK
- Stick to case‑based defence (EVs, wind) and keep CBAM timetables firm. Use CISAF to buy decarbonisation and grid capacity, not duplication of allied subsidies.
- Security plumbing: update FDI screening (inbound) and complete the outbound risk review; join or use MPIAto keep appeals alive.
- Wind & solar discipline: pursue FSR probes transparently; insist on price undertakings to avoid supply shocks.
Advanced Asia (Japan, Korea, Singapore)
- Export controls aligned with US/EU while Investment Promotion (ESPA/METI) channels funds to fabs and packaging—paired with MRAs and AEO upgrades for frictionless exports.
- Minerals strategy: leverage MSP financing windows and offtakes; publish project pipelines and ESG filters.
V. A simple message voters and firms can both accept
To citizens: We’re protecting the crown‑jewel technologies with narrow, allied rules—and keeping everyday trade open so prices stay sane.
To firms: If you meet the security and disclosure rules, your reward is speed: faster permits, firm power, and trusted lanes. No subsidy arms race, just certainty.
Policy Boxes
Box A — “Security, not autarky”: the carving test
Use a security measure only if all five are true: (1) Chokepoint tech; (2) Dual‑use risk evidenced; (3) Allied alignment plausible; (4) Licensing path exists; (5) Sunset/review in statute. (Think BIS chip rules + ASML alignment; avoid sector‑wide bans.)
Box B — Trusted‑trade lane (AEO/CTPAT) in one page
• Who: certified operators; What: risk‑based facilitation; How: MRAs among customs agencies; Benefits: fewer inspections, priority release, data reciprocity. (EU–US–Japan–UK MRAs already live.)
Box C — Carbon clubs beat flags
• Rule: measure embedded emissions, not origin.
• Tool: CBAM‑style adjustment timed with ETS free‑allowance phase‑out.
• On‑ramp: MRAs for verification methods; transition aid via Social Climate Fund.
Scoreboard (publish quarterly)
- Security narrowness: share of measures with licence pathways and sunset reviews.
- Trade friction: AEO share of import value; average clearance time vs non‑AEO.
- Legal hygiene: share of trade‑defence cases with public non‑confidential files; use of MPIA where relevant.
- Inputs secured: offtake coverage vs CRMA targets; MSP‑backed projects reached FID.
- Subsidy efficiency: €/MW connected (power), €/tCO₂ abated (industry), % projects reaching milestones under CISAF.
The punchline
Great powers will still quarrel. But most countries can compete without a subsidy war by buying capacity (power, ports, people), calibrating security (narrow, allied, sunsetted), and keeping trusted lanes wide open. That is how liberal economies stay open, resilient—and credible—when geopolitics runs hot.
Sources (selected)
- US Section 301 updates & de minimis reform: USTR notice; Reuters coverage on tightening de minimis.
- EU EV duties (definitive): European Commission notice (Implementing Regulation 2024/2754).
- US chip export controls (2022–2024) & VEU pathways: BIS background and Federal Register summary.
- ASML export‑restriction impact: ASML press release, Dec 2 2024.
- Chinese materials controls: Reuters on gallium/germanium/antimony curbs; CSIS analysis.
- CBAM timetable: European Commission (definitive regime 2026).
- EU Critical Raw Materials Act targets: European Commission explainer.
- Outbound investment screening: US Treasury final rule (effective Jan 2 2025); EU recommendation & Reuters.
- WTO dispute‑settlement & MPIA: WTO MC13 note; WTO MPIA case/news; Reuters on UK joining.
- AEO/CTPAT MRAs & WCO SAFE: EU customs; CBP MRA; WCO SAFE framework.
- CISAF state‑aid framework: European Commission pages and summaries.
- US solar anti‑circumvention context: US DOC/Trade.gov brief; industry coverage.