Why Bavarian companies are drawn to America

Many German – and Bavarian – companies are now looking to the US. Bertram Brossardt, general manager of the Bavarian Business Association, explains what Europe can do.

MUNICH – Many German companies are currently investing in the United States. A key takeaway: The Inflationary Reduction Act (IRA), US President Joe Biden's massive subsidy program to protect the climate and boost the economy. In an interview, Bertram Brossard, general manager of the Bavarian Chamber of Commerce, explains why the program is so popular.

Mr. Brossardt said it is now unusually common to hear of German companies investing in the United States. Do you notice this too?

It is generally better to invest abroad. The core of the Bavarian business model is to be worldwide. But we are also seeing more investments by Bavarian companies in the US. This trend began when we first emerged from the pandemic and accelerated significantly in 2023 when the Anti-Inflation Act went into effect. One-third of metal and electrical companies cite the US as their destination for migration. For a third of these, the IRA had clear influence. But important to me: it's about new investments. In 20 years I have never seen a company in Bavaria close down and move to America. It continues: Our companies invest in America, but they don't fully relocate there.

Where did companies invest before the IRA?

Strong in Central and Eastern Europe, it has declined significantly. It may be due to geopolitical situation or population level. Additionally, the mood in Germany and Bavaria is worse than it has been in decades. Investment decisions are certainly being questioned.

Europe also heavily subsidizes the economy. What does America do best?

It would be unfair to say that subsidies in Europe are fundamentally wrong; A lot of the right things are happening. But the US has the advantage that the application process there is much less complicated.

What does that mean?

In Europe, subsidies are provided. This means: money from the government budget should be distributed to companies through a long democratic opinion-making process. Accordingly, rules and regulations are often rigid and complex.

And America?

They offer tax benefits: If a company meets the necessary requirements, everyone automatically has a tax credit that can be calculated immediately. Every entrepreneur wants to comply with 23 additional regulations.

Doesn't Intel get ten billion per plant?

There is no debate as everyone who meets the requirements gets the tax break. Americans generally do, but this is especially noticeable with the IRA.

What is the basis of an IRA?

The US government wants to protect the climate and improve the economy. This includes, among others, the production of electric car batteries and the generation of green energy. IRA reduces the cost of battery production by a third. For offshore wind turbines, this reduces the cost of electricity from about $35 to $15 per megawatt hour. By comparison: electricity in Germany is equivalent to about $60.

Very attractive, but of course very expensive.

The U.S. government originally estimated funding of $369 billion. But: in principle, the amount of funds is not limited and depends on the actual use of companies and private consumers. We estimate access to $1.2 trillion. The biggest thing is to promote green energy.

Just for climate?

There are also requirements that a certain portion of the added value and raw materials be sourced from the United States. It is currently fueling growth.

Can the tax incentives be implemented in Europe as well?

Not in accordance with the current legal situation. There is a certain tradition against this in Europe, including a German one. Mostly because there is a perception that only big companies benefit from tax credits. I don't think it's realistic that we can change our funding system so quickly.

What can we do in Europe?

Create clear, simple financial guidelines and implement them quickly. But finance is only one factor.

Others?

Corporate and income taxes are too high, energy costs and a complex, slow bureaucracy are burdensome. An IRA is just one of many incentives. But this set of problems in Europe makes America attractive.