Disappointment has set in two years after the election of U.S. President Joe Biden was supposed to reset trans-Atlantic relations with the European Union. EU leaders are openly talking about fights, not only friendship.
They say conflict with Washington is the last thing they want, with war raging on their doorstep in Ukraine and common resolve essential in stopping Russia. But money is a threat to that unity.
“We already have war in Europe. The last thing we need is a trade war,” European Commission Vice President Margrethe Vestager told lawmakers Wednesday.
They were debating U.S. policies that many in the 27-nation bloc see as unfairly locking a longstanding and trusted ally out of the lucrative American market. The point of contention is the U.S. Inflation Reduction Act, a $369 billion plan that favors American-made climate technology through subsidies and, according to the EU, will unfairly discriminate against its firms.
The trans-Atlantic partners have long prided themselves on free trade unfettered by excessive subsidies and protectionism, and the law felt to Brussels like Washington betraying the spirit of fair competition.
“Elements of the IRA risk unleveling the playing field and discriminating against European companies,” European Commission President Ursula von der Leyen wrote to the EU leaders on the eve of their year-end summit.
While trans-Atlantic relations should cement their alliance as they face Russia and an ever more assertive China, there are plenty of hints of widening division. It is all the more surprising because European leaders welcomed Biden’s arrival two years ago as a return to warm relations and mutual commitments after four years of fractious ties under Donald Trump.
Trade disputes have been a red line for decades in trans-Atlantic relations, highlighted by fights over aircraft subsidies and steel exports and affecting everything from hormone-treated beef to liquor exports.
Planned subsidies under the Inflation Reduction Act passed by the U.S. Congress in August are especially grating for the EU. For example, electric car buyers are eligible for a tax credit of up to $7,500 as long as the vehicle runs on a battery built in North America with minerals mined or recycled on the continent.
Apart from addressing the leaders of the member states, von der Leyen also went to the EU legislature Wednesday to vent her complaints.
“Three aspects are particularly worrisome. First of all, the ‘buy American’ logic that underpins large parts of the IRA. Second, the tax breaks that could lead to discrimination. And third, the production subsidies that could disadvantage European companies. We need to address these,” she said.
There were signals of an impending tit-for-tat subsidy race.
“We need to give our answer — our European IRA,” von der Leyen said. “We need to make sure that investment aid and tax credits reach the concerned sectors more easily and faster.”
The head of the EU’s executive branch said she would propose initial plans next month.
Von der Leyen’s offices are negotiating on behalf of the 27 member nations on trade issues and at a European summit Thursday, and she will be looking for all the backing she can get.
Beyond hopping on the subsidy and protectionism train, potential actions the EU can take are complaints before the World Trade Organization or impose trade sanctions.
Biden acknowledged “glitches” in the legislation and said earlier this month alongside French President Emmanuel Macron that “there’s tweaks we can make” to satisfy allies. But a Democratic lawmaker who was a key architect of the measure said he had no intention of reopening it.
But having already stood shoulder to shoulder through eight rounds of sanctions against Russia and the need of unity with Ukraine glaringly clear, von der Leyen wanted to keep things in perspective.
“Let us never forget the bigger picture. A war is raging at the borders,” she said. “It is not the time for a trade war with our closest partner and ally.”
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