The Gipper loved him some free trade. Photo: The Independent
One of Donald Trump’s most interesting political achievements has been to force a Republican Party that had embraced free-trade orthodoxy for many decades into supporting, or at least tolerating, his own vintage 19th-century protectionist views. Like his harsh criticism of the Iraq War launched by the last GOP president, Trump’s frequently savage words about free trade and globalization have clearly embarrassed a lot of Republicans who are old enough to remember when that kind of talk was associated with lefty union types and cranky Old Right figures like Pat Buchanan. The fact that he has now made tariff-driven trade wars the centerpiece of his second-term economic policies is often ignored by old-school Republicans, or rationalized as merely a rhetorical weapon he deploys in cutting commercial deals with other countries.
But at least one of the Canadians who are so often an object of Trump’s protectionist belligerence is drawing attention to the 180-degree turn the 47th president executed in conservative international economic thinking, or the lack thereof. Ontario premier Doug Fordran an ad on U.S. television networks featuring clips in which the unquestioned patron saint of pre-Trump conservatism, Ronald Reagan, loudly and proudly embraces free trade:
Here’s what the Gipper says in the ad, which is from a 1987 speech:
When someone says, “Let’s impose tariffs on foreign imports,” it looks like they’re doing the patriotic thing by protecting American products and jobs. And sometimes for a short while, it works — but only for a short time.
But over the long run, such trade barriers hurt every American worker and consumer.
High tariffs inevitably lead to retaliation by foreign countries and the triggering of fierce trade wars.
Then the worst happens. Markets shrink and collapse. Businesses and industry shut down, and millions of people lose their jobs.
Throughout the world, there’s a growing realization that the way to prosperity for all nations is rejecting protectionist legislation and promoting fair and free competition.
America’s jobs and growth are at stake.
Trump promptly pitched a fit at Truth Social and suspended trade negotiations with Canada:
CANADA CHEATED AND GOT CAUGHT!!!They fraudulently took a big buy ad saying that Ronald Reagan did not like Tariffs, when actually he LOVED TARIFFS FOR OUR COUNTRY, AND ITS NATIONAL SECURITY…. Thank you to the Ronald Reagan Foundation for exposing this FRAUD.
Actually, the Reagan Foundation complained that Ontario hadn’t asked for permission to use the clip and said it “misrepresented” the overall speech, which indeed justified the imposition of tariffs on Japan. But there’s nothing fake about the clip; Reagan was making it clear that the measures he was taking against Japan were unfortunate and temporary expedients that did not detract from his more general commitment to free trade. The 40th president did not “love tariffs for our country and its national security.” Like nearly every pre-Trump Republican leader who remembered the disastrous effects of the Smoot-Hawley Tariff Act of 1930, which helped exacerbate the Great Depression, Reagan only used trade restraints sparingly and grudgingly.
Trump, on the other hand, has called “tariffs the most beautiful word to me in the dictionary” and believes in them not as a temporary measure or negotiating ploy but as the foundation of a good economy. He dreams of replacing the federal income tax with tariff revenues. He is precisely the sort of demagogue Reagan was speaking of as a misguided advocate of tariffs as “patriotic.”
You can debate whether Trump is right or (as most economists believe) wrong. But you can’t debate whether he’s taken the free-trade policies of Ronald Reagan (who was particularly devoted to dismantling barriers to trade with Canada) and tossed them in a wastebasket. That may embarrass him and other Republicans, but it’s no excuse for blaming those with better memories.
The alcohol industry recently dodged an attempt to smuggle a neo-Prohibitionist agenda into the U.S. Dietary Guidelines revisions. While the industry was able to breathe a sigh of relief thanks to this rule, its reprieve has been short-lived: President Donald Trump’s tariff policies have started to hammer the industry once again.
On August 1, a 15 percent tariff went into effect on most European goods imported to America. Despite some initial hope that alcohol might be spared as part of a Trump-E.U. trade deal, the tariff remains in effect for booze, and it’s U.S. small businesses that are bearing some of the highest costs.
During the first Trump administration, alcohol producers were hit hard by Trump’s tariff policies, facing price increases on beer cans (from the aluminum tariffs) as well as painful retaliatory tariffs from other countries that targeted American alcohol. So far, the second Trump presidency appears to promise more of the same.
With the tariffs now officially in effect, small- and medium-sized wineries in California are reporting price increases on key input materials, including glass, corks, and barrels. The day after the tariffs took effect, Dresser Winery in Paso Robles, California, was informed by its Portugal-based cork maker that cork prices would increase by 15 percent—the manufacturer offered to pay 2 percent of the cost increase, leaving the winery to cover the remaining 13 percent.
Dresser Winery also sources its glass abroad, either from China or Mexico, and its barrels come from France or Hungary. As the winery’s owner Kory Burke pointed out to The Columbian, simply swapping these goods for American-made products is far from simple. American glass bottles are expensive and harder to find, while American-made oak barrels would noticeably alter the flavor profile of the wine. Another California winery reported that the tariffs will raise their production costs by 50 cents per bottle.
The impact on the alcohol industry started being felt even before the tariffs officially went into effect, with prominent bourbon brands such as Brown-Forman (owner of Jack Daniel’s and Woodford Reserve), Wild Turkey, and Bulleit all experiencing drops in bourbon sales over the summer in anticipation of the tariffs, partly due to export markets becoming more politically fraught. And none of this even includes the decision by Canada earlier this year to yank all U.S. alcohol from the shelves of its municipal-run liquor stores, which resulted in devastating sales declines for U.S. booze in Canada. (In 2024, Canada was the second-largest export market for American spirits.)
There are also lesser-known effects that are starting to have an impact. As Kevin D. Williamson noted recently in The Washington Post, the American three-tier system of alcohol distribution presents particular challenges for the industry when it comes to weathering tariffs. American alcohol distributors—who operate as a government-mandated middleman between producers and consumers—often derive higher profit margins on wines coming from countries like France and Italy.
As Williamson puts it, these imported wines help “sustain the distribution ecosystem that lower-margin U.S. producers rely on to get their products to market,” which means that “European imports don’t just compete with U.S.-made wines—they effectively subsidize their distribution.” Williamson goes on to quote an alcohol distributor who derives 75 percent of its profits from European wine. “We need French, Spanish and Italian wines to make our business work,” said Harry Root, co-founder of the South Carolina and Alabama distributor Grassroots Wine. “Remove any piece of the puzzle, and the whole thing doesn’t work.”
The cost of tariffs on the alcohol industry is no longer merely speculative. “It has real impacts,” Burke said. “We’ve thought deeply about selling our property. We’ve thought deeply about…charging double our price for our bottle.”
As has been the theme of Trump’s trade war, in the end, it’s American businesses and consumers that suffer.
Since President Donald Trump took office, Congress has abdicated its constitutional authority—and responsibility—to “lay and collect Taxes, Duties, Imposts and Excises” to the executive branch. On Tuesday, the House of Representatives voted yet again to prevent itself from reclaiming these powers from the president.
The vote was on a procedural measure that passed out of the Rules Committee on Monday, which included a provision to “extend until March 31 a block on efforts…to end the national emergencies underlying Trump’s sweeping tariffs,” reportsPolitico. The measure passed in a partisan 213–211 vote, with only Reps. Thomas Massie (R–Ky.), Kevin Kiley (R–Calif.), and Victoria Spartz (R–Ind.) breaking party ranks.
The measure mirrors House Resolution 211, which cleared the House in March and “blocked the most direct pathway for lawmakers to revoke the emergency executive powers” Trump used to levy tariffs “on goods from Canada, Mexico, and China,” Reason‘s Eric Boehm wrote at the time. The March resolution deemed each remaining day of the first session of the 119th Congress as not a day “for purposes of section 202 of the National Emergencies Act [NEA] with respect to a joint resolution terminating a national emergency declared by the President on February 1.”
The NEA grants Congress the authority to cancel all national emergencies declared by the president through a law or joint resolution. This includes emergencies invoked by the International Emergency Economic Powers Act (IEEPA)—the law that Trump has used to levy tariffs on many of America’s trade partners—which authorizes the president to impose asset freezes, trade embargoes, and sanctions, but not tariffs. By refusing to recognize days during which Section 202 of the NEA is considered, Congress ceded its ability to nullify Trump’s February IEEPA tariffs until January 3, 2026.
Tuesday’s resolution follows the same logic. House Resolution 707 nullified the provisions of “section 202 of the National Emergencies Act…from September 16, 2025, through March 31, 2026 [with respect to] a joint resolution terminating the national emergency declared by the President on July 30.” That national emergency was declared the day before Trump’s July 31 executive order further modifying the reciprocal tariff rates, which were first imposed on “Liberation Day” in April. This order not only levied across-the-board duties on Mexico, Canada, and China, as Trump did in February, but imposed not-so-reciprocal tariffs on every country with which the U.S. has normal trade relations. By passing this resolution, the only way Congress can interfere with Trump’s reciprocal tariffs would be to pass a law amending the IEEPA statute itself, which almost certainly will not happen.
Rep. Suzan DelBene (D–Wash.), who voted against the resolution, tells Reason that “House Republicans have yet again abdicated their constitutional role over trade policy to President Trump, effectively capitulating to the largest tax increase on Americans in history.”
As Congress has sat idly by, courts have been deliberating the constitutionality of Trump using IEEPA to set tariffs.
In May, the Court of International Trade (CIT) unanimously ruled that Trump’s IEEPA tariffs were “beyond the scope of executive power, and…blocked [them] by a permanent injunction,” Ilya Somin, one of the plaintiffs’ attorneys, explained at the time. The U.S. Court of Appeals for the Federal Circuit upheld the CIT’s ruling on August 29, but vacated the lower court’s universal injunction. Pending an oral argument before the Supreme Court in the first week of its November session, Trump’s tariffs remain in effect.
The Supreme Court wouldn’t be involved if Congress hadn’t delegated its tariff power to the president through laws like the Trade Expansion Act of 1962 (responsible for Section 232 tariffs) and the Trade Act of 1974. Unfortunately, Congress has long been eager to offload its constitutional duties to the executive branch. Tuesday’s resolution is merely a continuation of this trend.
Earlier this week, the Trump administration filed a petition for certiorari urging the Supreme Court to review the Federal Circuit decision in the case challenging the president’s massive “Liberation Day” tariffs, brought by the Liberty Justice Center and myself on behalf of five small businesses harmed by the tariffs (we were later joined by leading constitutional law scholars and Supreme Court litigators Neal Katyal and Michael McConnell). The government also submitted a motion for expedited review.
Today, we submitted a response to the petition, in which we agree the Supreme Court should hear the case and resolve it quickly, so as to put an end to the harm caused by the illegal tariffs as quickly as possible. We previously prevailed in the Court of International Trade, and on appeal in the Federal Circuit, and I hope the Supreme Court – should it take the case – will rule the same way.
Our case is consolidated with one filed by twelve state governments, led by the state of Oregon. Both challenge massive tariffs Trump has imposed under his supposed authority under the International Emergency Economic Powers Act of 1977 (IEEPA).
By now, this litigation has generated thousands of pages of briefs and other filings, and 176 pages of judicial opinions (if I have the count right). But underneath all the legalese, the central issue at stake is actually a simple one: Does our constitutional system give one man – the president – the power to impose any tariffs he wants, in any amount, on any nation, at any time, for any reason? If the answer is “no,” then the IEEPA tariffs are illegal.
And the answer should indeed be “no,” because the Framers of the Constitution carefully avoided giving the executive the kind of unbridled tax authority claimed by power-grabbing English monarchs, like Charles I. The president cannot wield monarchical power, and letting him do so is an affront to the rule of law.
We have presented an assortment of more detailed reasons why “no” is the right answer to the central question raised by this case: the fact that IEEPA doesn’t even mention tariffs and has never previously been used to impose them, that there is no “unusual and extraordinary threat” of the kind required to invoke IEEPA, the major questions doctrine, the constitutional nondelegation doctrine, and more. These points are covered in much greater detail in our various legal filings (see the Liberty Justice Center site for a compilation), and in some of my earlier writings about the litigation.
If the Supreme Court takes the case, there may well be many additional briefs, and other filings. Such materials are important. But it is also essential to remember the deeper principle underlying all the details: the president is not a king, and our Constitution does not grant him monarchical power.
The White House celebrated Labor Day by announcing that President Donald Trump’s “protectionist trade policies have helped drive more than $8 trillion in new U.S. investment.” The accompanying photo refers to “$8 trillion in tariff revenue.” There’s a difference between $8 trillion in U.S. investment and $8 trillion in tariff revenue, but Trump’s trade policies have achieved neither.
The second claim is easier to refute. The Bipartisan Policy Center (BPC) calculates the gross tariff and excise tax revenue generated from January 1 to August 28 to be $158.8 billion, according to the Treasury Department’s Daily Treasury Statements. The customs and excise taxes collected from January 20, when Trump took office, to August 28 amount to about $156 billion.
According to the Treasury Department’s own data, the president’s policies have clearly not raised anywhere near $8 trillion; they’ve raised 2 percent of this figure. The Congressional Budget Office estimates that the tariffs Trump has implemented since January will generate an estimated $3.3 trillion over 10 years—significantly less than the $8 trillion that the White House is claiming the tariffs have already raised.
Gross tariff revenue isn’t even the most relevant statistic; net tariff revenue is. The BPC explains that the latter “removes ‘certain other excise tax revenue’ and accounts for refunds of tariffs,” i.e., the tariff revenue that stays in federal coffers. Although net tariff revenue is not available in the Daily Treasury Statements, the BPC was able to determine that net tariff revenue was $135.7 billion from January through July 31using the Treasury’s Monthly Treasury Statements, which account for tariff refunds. Net tariff revenue as a percentage of total imports jumped from about 2.4 percent in March to 5.73 percent in April, reflecting the impact of Liberation Day’s “reciprocal tariffs,” and climbed to 10.31 percent in June.
Still, the net tariff revenue of $135.7 billion amounts to 1.7 percent of the White House’s claimed $8 trillion in tariff revenue. (That’s neglecting the fact that the Joint Committee on Taxation estimates that “$1 of excise tax revenue will lead to a $0.25 decline in income and payroll tax revenue,” according to the BPC.)
The first claim is more slippery; it’s unclear what the White House means by saying Trump’s policies “helped drive” investment. One interpretation is that it is crediting Trump’s reciprocal tariffs and hostile negotiations for producing more foreign direct investment (FDI) in the U.S. than would have otherwise existed. Even assuming that all FDI since January is the direct result of Trump’s protectionist policies, it is completely inconceivable that $8 trillion has been raised as a result.
The Global Business Alliance, a trade association that “actively promotes and defends an open economy that welcomes international companies to invest in America,” reported $52.8 billion in FDI in the first quarter of 2025—a 34 percent decrease from 2024’s fourth quarter—citing the Bureau of Economic Analysis (BEA). The BEA has not released data for the second or third quarter of 2025, but, even if we generously assume a quarter-to-quarter doubling, meaning $100 billion in the second quarter and $200 billion in the third (of which a month remains), we reach a grand total of a little over $350 billion: 4.4 percent of Trump’s touted $8 trillion in “new investment.”
The Labor Day post also credited Trump with “creating hundreds of thousands of jobs.” Total nonfarm employment increased by 597,000 from January 2025 to July 2025, according to the Bureau of Labor Statistics’ July 2025 report. However, total nonfarm employment increased by 1,073,000 from January 2024 to July 2024. If the White House is crediting Trump’s policies with changes in the economy, then it should recognize that they added nearly half as many jobs to the economy as the Biden administration did over the same time period last year.
Later on Sunday, the White House said to “Trust in Trump,” sharing a screenshot of Trump’s Truth Social post where he refers to “all of the TRILLIONS OF DOLLARS we have already taken in” with tariffs. The data show that you should reject this fictitious figure, as well as his other claims that tariffs are good for the United States.
DAVOS, Switzerland — Britain’s top finance minister Jeremy Hunt has warned Donald Trump that a return to U.S. protectionism would be a “profound mistake” if he wins the U.S. election in November.
Speaking during a press briefing at the World Economic Forum in Davos, Hunt hit out at the Republican party frontrunner’s proposal for a universal tariff on all goods imported into the U.S.
Asked by POLITICO if he was concerned about the impact on the U.K. economy “if the U.S. elects a protectionist candidate for president like Donald Trump”, Hunt replied: “I don’t support protectionist measures. I think they harm the people who introduce them as much as the people they are aimed at.”
Hunt argued that a “huge flourishing of global trade” has helped to lessen poverty around the world, adding: “It would be a profound mistake to move back to protectionism.”
In an interview with Fox News in August last year, Trump floated an automatic 10 percent tariff on all goods imported to the U.S.
During his first term as U.S. president, Trump imposed tariffs on steel and aluminum imports and declared that “trade wars are good, and easy to win.”
Hunt’s comments will be seen as a direct rebuke of the U.S. Republican frontrunner, who has had a mixed relationship with senior U.K. politicians in the past.
Trump was known to hold a low opinion of former PM Theresa May, whom he undermined during her time in Downing Street. The former president was closer to her successor Boris Johnson, however — even giving Johnson his private phone number.
BRUSSELS — The chips industry faces a different kind of summer heat: Chinese and Western governments meddling with its supply chains.
From Tuesday, China is putting the brakes on the export of two critical metals for making chips — gallium and germanium — in retaliation for the United States, the Netherlands and Japan curbing exports of some advanced chip printers. The Dutch restrictions, published before summer, will apply from September 1.
This tit-for-tat trade war is unfolding against the backdrop of a global subsidies race to re-shore and secure microchip production. What began in a time of pandemic-era shortages is now a race to avoid supply chokepoints in case conflict breaks out in Taiwan, a major chips hub.
Despite China’s stranglehold on raw materials — with, for example, 95 percent of the world’s supply of primary gallium — chips companies have stayed relatively quiet about the incoming restrictions in their recent quarterly earnings reports.
Europe’s leading chip makers, like NXP Semiconductors, rarely mention China’s upcoming raw materials restrictions in their earnings releases or follow-up calls with analysts.
There was equal indifference to the Western restrictions that provoked the Chinese counter-move. ASML, the Dutch chip equipment supplier that is the main target of the Dutch export controls, said the measures would not have a “material impact” on the firm’s 2023 outlook, nor on longer-term scenarios.
But that doesn’t mean there won’t be any consequences.
Because Chinese gallium and germanium producers will have to seek export permits, much will depend on how rigorous the permitting procedure is, analysts from research firm Wood Mackenzie wrote in a report in early July with the ominous title, “Chips wars: a sign of things to come?”
“If the permitting process restricts the supply of raw materials to chip manufacturers outside China, this will impact downstream end-use markets, including electric vehicles,” the report reads. That brings back memories of the chips shortages in 2020 and 2021, which increased waiting times for car deliveries.
Particularly vulnerable countries in Europe: Germany — the second-largest importer of gallium after Japan — and the Netherlands.
Ramping up
A bigger concern, however, is that the current restrictions are only the start of a larger escalating trade war. “The concern is that this protectionism could escalate to other critical materials end sectors,” according to the Wood Mackenzie report.
ASML CEO Peter Wennink was already forced to comment during the company’s quarterly earnings presentation on media reports that more chip export controls out of the U.S. are coming: “Of course, we will and cannot respond to speculation.” But more in general, he had to admit during the same earnings call that there’s “significant uncertainty” in the market, citing “the geopolitical environment, including export controls” as one of the reasons.
The message: The industry is waking up to the fact that governments consider semiconductors to be strategically important and no longer hesitate to intervene to secure their national security interests.
Both the U.S. and the EU have rolled out multibillions’ worth of subsidy programs — the EU’s Chips Act (€43 billion) and the U.S.’s CHIPS and Science Act ($52 billion) — to lure private investments from U.S.-based Intel, South Korea’s Samsung or Taiwan’s TSMC.
If that’s the carrot tack, some experts point out that governments are also increasingly using the stick approach of export controls — and the current pace of restrictions between the West and China would have been unthinkable a few years ago.
Chris Miller, an associate professor of international history at Tufts University and author of the book “Chip War,” said last week at an event in Washington that he was “surprised by the success” of the U.S.-led effort to build a coalition on export controls.
“Zoom back five years ago, in 2018, ask anyone in this room: Would it have been possible to have established an export control regime bringing together countries from Europe and Asia? Most people would have bet against it,” Miller said.
It’s a new reality for the companies involved — and one that could have unintended consequences.
Intel CEO Pat Gelsinger summed it up at the Aspen Security Forum earlier in July: “Right now, China represents 25 to 30 percent of semiconductor exports. If I have 25 or 30 percent less market, I need to build [fewer] factories.”
That comment got a rebuke from U.S. Commerce Secretary Gina Raimondo, who said that she didn’t see “any inconsistency” between the export controls to China and the U.S.’s multibillion-dollar plan to re-shore chips capacity.
Brendan Bordelon contributed reporting from Washington.
At NATO summit after NATO summit, European leaders get a clear public message from Washington — increase spending on defense.
In private, there’s another message that’s just as clear — make sure a lot of that extra spending goes on U.S. weapons.
European leaders are resisting.
“We must develop a genuinely European defense technological and industrial base in all interested countries, and deploy fully sovereign equipment at European level,” French President Emmanuel Macron said at the GLOBSEC conference in Bratislava last month.
The decades of cajoling from Washington are paying off. Although most EU countries aren’t yet meeting NATO’s target of spending 2 percent of GDP on defense, the alliance has seen eight years of steady spending increases. In 2022, spending by European countries was up by 13 percent to $345 billion — almost a third higher than a decade ago — much of it a reaction to Russia’s full-scale invasion of Ukraine.
Now the question is how that money will be spent.
The U.S. wants to ensure that European countries — which already spend about half of their defense purchasing on American kit — don’t make a radical switch to spending more of that money at home.
Some European leaders are hoping that’s exactly what happens, but it’s an open question whether the Continent’s defense industry can make that happen.
“Traditionally, there was a suspicion about a change in Europe’s defense capabilities which dates back more than 25 years,” said Max Bergmann, director of the Europe, Russia, Eurasia Program at the Washington-based Center for Strategic and International Studies. “What direction would the EU go, would it mean the EU would decouple from NATO, what would the impact be on U.S. defense industrial policy?”
Buying at home
The current tensions in Brussels are over whether new EU-wide defense policy should be limited to EU companies — a position driven by Macron and Internal Market Commissioner Thierry Breton, a Frenchman. That confirms suspicions stateside about European protectionism when it comes to allowing U.S. companies to compete for EU contracts.
“Our plan is to directly support, with EU money, the effort to ramp up our defense industry, and this for Ukraine and for our own security,” Breton said last month.
Internal Market Commissioner Thierry Breton wants new EU-wide defense policy to be limited to EU companies | Olivier Hoslet/AFP via Getty Images
But there’s an uncomfortable fact for the backers of European strategic autonomy: When it comes to arms, Europe still depends on the U.S.
While European companies have deep expertise in defense — building everything from France’s Rafale fighter to Germany’s Leopard tank and Poland’s man-portable Piorun air-defense system — the scale of the U.S. arms industry, as well as its technological innovation, makes it attractive for European weapons buyers.
The most common big-ticket item is Lockheed Martin’s F-35 Joint Strike Fighter, at a cost of $80 million a pop. There is also an immediate surge in demand for off-the-shelf items like shoulder-fired missiles and artillery shells.
“Following Russia’s invasion of Ukraine, European states want to import more arms, faster,” said a report by the Stockholm International Peace Research Institute (SIPRI).
Buying abroad
The war in Ukraine has underscored the dominance of the U.S. defense industry.
A host of European countries are buying Javelin anti-tank missiles produced by Raytheon and Lockheed Martin; Poland this year signed a $1.4 billion deal to buy 116 M1A1 Abrams tanks, as well as another $10 billion agreement to buy High Mobility Artillery Rocket Systems produced by Lockheed Martin; Slovakia is buying F-16 fighters, while Romania is in talks to buy F-35s.
Those deals are raising fears in Europe over whether they can wean themselves off of U.S. defense suppliers. In one example, France and Germany worry about Spain’s intentions as it kicks the tires on F-35s while also being a partner in developing the European Future Combat Air System jet fighter.
But the need to restock weapons depots and continue shipping materiel to Ukraine is urgent, and after decades of contraction, the Continent’s defense industry is having a difficult time adjusting.
“Our European allies and partners, they’ve never experienced anything like this,” said a senior U.S. Defense Department official, referring to the spasm of spending brought on by Russia’s invasion. The official was granted anonymity to discuss the situation. “They don’t yet have the defense production authorities they need [to move quickly] and they’ve really been looking to us to try to get a handle on how they can increase production, and I think they’re learning a lot from us.”
To help Europe get there, the United States has expanded the number of bilateral security supply arrangements it has with foreign partners since the Russian invasion, signing new agreements with Latvia, Denmark, Japan and Israel since October. These allow countries to more quickly and easily sell and trade defense-related goods and services.
The Biden administration also signed an administrative arrangement with the European Union in late April to establish working groups on supply-chain issues, while giving both sides a seat at the table in internal meetings at the European Defence Agency and the Pentagon.
But there are limits to how far and how fast both sides are able and willing to go.
In the near term, capacity issues and political will means the rhetorical sea change in EU military spending is unlikely to make a huge dent in U.S. military industrial policy.
While the past 18 months have seen a huge spike in defense budgets — Germany announced a special debt-financed fund worth €100 billion after the Russian invasion of Ukraine; Poland’s defense expenditure is set to reach 4 percent of GDP this year — EU-wide projects are facing significant headwinds. European companies say they need longer lead times and long-term contracts to make needed investments.
“You need that visibility and certainty to make those investments. We’re in a chicken game between governments and industry — who are the first ones that are putting the money on the table,” said Lucie Béraud-Sudreau, director of the military expenditure and arms production program at SIPRI.
Ultimately, the global defense boom means that there should be plenty of military spending to go around, at least in the short term as countries rush to prove their worth to their NATO and EU allies and the Russian threat remains acute.
Paul McLeary reported from Washington and Suzanne Lynch from Brussels.
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PARIS — France’s feisty Economy Minister Bruno Le Maire has another opportunity to pick a fight with Washington as a sensitive investment screening case is about to land on his desk.
The French government wants to prevent nuclear-submarine parts supplier Segault from falling into American hands just as France and the U.S. are experiencing new tensions over the Inflation Reduction Act, a $369 billion package of green subsidies and tax breaks that Paris and Brussels slammed as a protectionist move in breach of global trade rules.
The two countries have seen an ebb and flow in tensions in recent years that reached worrying levels back in 2021, when the U.S. infuriated France by snatching away a multibillion-euro submarine contract Paris had signed with Canberra.
Now, the American takeover of the small France-based company with less than 100 employees, which was virtually unknown to most French people until a few weeks ago, is turning into a test of France’s industrial sovereignty ambitions.
Segault’s current owner, Canada’s industrial valves group Velan, is being bought by American industrial machinery giant Flowserve in a takeover deal announced earlier this year. Segault supplies components for nuclear-propelled submarines built by state-owned shipbuilder Naval Group and also makes industrial valves that are used on France’s flagship Charles de Gaulle aircraft carrier. If the deal goes through, Segault would become American-controlled, raising concerns in Paris’ halls of power that Washington would then have access to strategic French technology.
The deal has become a hot political issue in recent weeks, with right-wing MPs urging Le Maire to block the American buyer, and with a surprise left-wing candidate emerging as a bidder.
The government is currently “looking for a French buyer,” according to a spokesperson for France’s defense ministry, who declined to comment on offers received so far, noting that the French economy ministry has the final word on it.
Under French law, the economy ministry must be informed of the takeover of companies in strategic sectors in order to green-light or veto deals. The government confirmed that Segault’s takeover falls within the scope of France’s investment screening powers and will be examined as soon as it is officially notified to French authorities.
Investment screening decisions are first assessed at the technical level within France’s powerful economy ministry, known as Bercy, but they also have a political dimension as they are ultimately taken by the economy minister himself via a decree. In the past, Le Maire has not hesitated to use his veto powers for politically sensitive cases, turning investment screening cases into political battles. In a bid to cast himself as a defender of French industrial jewels, Le Maire widened the scope of investment screening powers in 2019, during his first term.
As in many other EU countries, the scope of France’s veto powers was further extended during the coronavirus pandemic, to prevent the risk that companies weakened by the crisis could be bought by foreign investors. Those new powers, which were meant to be temporary, have been repeatedly extended amid the economic crisis linked to Russia’s full-scale invasion of Ukraine.
The Segault case is also seen as an opportunity for Paris to show its muscle.
For socialist Michel Sapin, who served several times as France’s finance and economy minister, the deal gives the government an opportunity to present itself as a defender of national gems by taking “a braggart position on re-industrialization and industrial sovereignty” that, according to him, has not been backed up by action so far.
MEP Marie-Pierre Vedrenne noted that France’s investment screening won’t discriminate against U.S. buyers | Alexis Haulot/European Parliament
“We can’t deny that we have some irritants with Americans, especially the IRA in this phase,” said Macron’s ally Marie-Pierre Vedrenne, vice chair of the European Parliament’s trade committee, while noting that France’s investment screening won’t discriminate against U.S. buyers.
But Macron’s allies were also quick to insist that Paris’ efforts to take Segault away from its American buyer was not a protectionist attempt to block a U.S. investment.
“The criteria won’t be friendship or mistrust toward Washington,” said a French minister, who was not authorized to speak publicly on the matter, adding that “the context” should not prevent Paris from “controlling some sovereignty aspects” of the deal.
For Vedrenne, Macron’s ally in the European Parliament, “the Americans are first of all in a mindset of prior defense of their interests and we see it with this case … sovereignty is at stake so we have to be vigilant whatever the nationality [of the buyer] is, even if it is an ally, because the defense of the French interests must be examined above all.”
Despite some displays of friendship, tensions between Paris and Washington have risen at a steady pace over recent months and increased after French President Emmanuel Macron told POLITICO that Europe should not be “America’s followers” when it comes to China policy.
Le Maire has also been particularly harsh with the U.S., accusing Washington of using Russia’s war in Ukraine to establish “economic domination” and of breaching WTO rules with its massive subsidy package, the Inflation Reduction Act. Earlier this month, he said that Europe should, much like the the U.S. and China, put first its own industrial interests and stop obeying the free-trade dogma.
Earlier in the month, as he visited Washington, he accused “some” in the U.S. of applying double standards when it comes to trade with China. “I see that the volume of trade between China and the United States has never been so high … we are asking Europe to give up trade that has increased between the United States and China. We don’t want to be the village idiots, who get screwed and let other powers trade with China while we would no longer have the right to do so,” the minister said.
Should France decide to veto the deal, Segault could be carved out from Flowserve’s acquisition of Velan. However it is unclear whether the American buyer would still be interested in buying Velan without Segault.
Le Maire’s quest for a French buyer might be a tough mission to accomplish.
Another former economy minister and “Made in France” champion, socialist Arnaud Montebourg urged Le Maire to block the deal earlier this month and offered to buy Segault together with the help of Pierre-Edouard Stérin, a businessman who in the past has been close to far-right former presidential candidate Eric Zemmour.
A person with direct knowledge of the file but who was not authorized to speak publicly said that it is unlikely Le Maire would back Montebourg’s offer.
DAVOS, Switzerland—As snow pounds the Swiss mountain town of Davos, American lawmakers are huddled in warm, quiet rooms trying to assuage European concerns that the United States hasn’t just turned into a protectionist power.
The passage of Washington’s Inflation Reduction Act (IRA), the $369 billion behemoth legislation stuffed with clean-energy incentives, has upended EU-U.S. relations, prompting European accusations that the U.S. is unfairly boosting its own companies to encourage local investment.
In response, the EU is looking to counter with state-provided aid of its own. As the World Economic Forum hosts its annual event in Davos this week, a U.S. delegation — featuring some of the most high-profile members of Congress — was planning to meet European Commission President Ursula von der Leyen Monday night to discuss the issue before she gives a much-anticipated speech here Tuesday morning. That meeting was canceled due to travel issues for von der Leyen, however, though U.S. lawmakers are still hoping to reschedule.
The mix of U.S. senators and House members say Europe has it all wrong. The U.S., they told POLITICO in multiple exclusive interviews on the sidelines of the elite gathering, is simply investing in its own energy and economic security. And a stronger America means a stronger ally, they argued.
Europe and Germany “became too reliant on Russian energy,” said Senator Chris Coons, a Democrat from Delaware who’s leading the delegation, adding “my hope is that we can together find a path forward.” American and European leaders need to “have that conversation about the alignment of values and priorities.”
But Europe doesn’t see alignments right now — only breaks.
After something of a golden era of EU-U.S. cooperation following Russia’s invasion of Ukraine — the two sides worked constructively together to devise complex sanctions packages against Moscow — Europe was caught off guard by America’s subsidy-heavy legislation. In particular, a provision granting tax credits for electric vehicles manufactured in North America incensed the Europeans — including big car producers like France and Germany.
American lawmakers understand the criticism but believe it’s misguided. Senator Joe Manchin, the centrist Democrat from West Virginia who was instrumental in passing the IRA, said Europe is being “hyper hypocritical” after decades of European protectionism.
Manchin continued that, on a separate occasion, he told French President Emmanuel Macron the IRA couldn’t possibly hurt Europe, despite the concerns.
That’s the same message he’s delivering in the winter wonderland.
“That bill was designed to basically strengthen the United States so that we can help our allies and friends, which need it right now,” Manchin said. “And if anybody needs it, the EU needs it. And without that, we’re not going to be and maintain the superpower status of the world if we’re not energy independent.”
Representative Gregory Meeks from New York, the House Foreign Affairs Committee’s top Democrat, said Europeans still seem nervous despite the bipartisan message from Democrats and Republicans. They’re asking if lawmakers can still amend the legislation to assuage fears of withering European investments. Meeks has been retorting that “there’s no perfect bill,” and that it’s “extremely important” to secure America’s supply chain for critical semiconductors and to combat climate change.
Yet how the U.S. tackles climate change is still a point of contention within Congress, as Manchin — who retains immense sway with a razor-thin Democratic majority in the Senate — says fossil fuels remain vital to the American economy.
“I told them, I said, the most important thing is basically you cannot eliminate your way to clean your climate,” Manchin said outside the Hilton Garden Inn, where lawmakers are staying. “You can innovate it, and that’s what we’re doing in the U.S.”
Von der Leyen is expected to touch on the subsidy spat during her keynote speech Tuesday at the World Economic Forum.
She previewed last week that EU officials are focusing their attention on trying to secure changes that would allow them to also benefit from the U.S. tax incentives, which currently extend to Mexico and Canada. Privately, however, EU officials concede there is minimal room for maneuver, given the IRA has already passed Congress.
This week in Davos could be an opportunity for two of the world’s biggest trading blocs — the EU and the United States — to try and iron out their differences. But with little room for compromise, the Atlantic Ocean between the two seems as wide as ever.
This article was updated after a meeting Monday between Ursula von der Leyen and U.S. lawmakers was canceled due to travel issues.
China has challenged a move by the United States to block sales of advanced computer chips and chip-making equipment to Chinese companies by launching a trade dispute at the World Trade Organization, calling the measures “trade protectionism.”
The country’s commerce ministry filed a formal complaint against the United States with the WTO on Monday, according to a statement. The two countries are both members of the trade body, which has a mechanism for resolving disputes.
“China’s filing of a lawsuit at the WTO is to resolve China’s concerns through legal means and is a necessary way to defend its legitimate rights and interests,” the ministry said.
On October 7, the Biden administration unveiled a sweeping set of export controls that ban Chinese companies from buying advanced chips and chip-making equipment without a license. The rules also restrict the ability of US citizens or green card holders to support the “development or production” of chips at certain manufacturing facilities in China.
The commerce ministry blasted the US move as threatening global supply chain stability and called it “a typical practice of trade protectionism.” The complaint is the first action China has taken at the global trade body against the US chip sanctions.
US officials say the export controls were intended to protect national security interests.
Analysts widely consider the measures to bea major threat to China’s tech ambitions, as the global semiconductor industry is heavily dependent on the United States and countries aligned with it for chip design, the tools that make them, and fabrication. It also comes as the United States is looking to bolster its domestic chip manufacturing abilities, after chip shortages earlier in the pandemic highlighted the country’s dependence on imports from abroad.
Washington has also pressured its security partners to comply with chip-related curbs on China. Jake Sullivan, the White House national security adviser, said on Monday that Washington had spoken with its partners including Japan and the Netherlands to tighten chip-related exports to China, according to Reuters.
Beijing has tried to push back against the sanctions. Last month, Chinese President Xi Jinping met with leaders from South Korea and the Netherlands, both key to the global chip-making supply chain, at the G20 summit in Bali, Indonesia. He called for both countries to boost cooperation in high-tech manufacturing and avoid “the politicization of economic and trade issues.”
Chips are a growing source of tension between the United States and China. In recent years, Washington has turned up the pressure on China’s tech sector by limiting access to cutting-edge chip components and machinery.
To secure its own chip supplies, Beijing has stepped up efforts to boost domestic semiconductor production in recent years.
In November 2018, just months after Washington hit Chinese telecoms giant ZTE Corp with an export ban, the Chinese government set up an industry alliance of companies and research institutes as part of efforts to design advanced chips. The group’s focus is on developing Risc-V, an open-source chip design architecture that has increasingly become a rival to Softbank
(SFTBF)’s Arm, the current global leader. Members of the consortium include the Chinese Academy of Sciences, Alibaba
(BABA), Tencent
(TCEHY), and Baidu
(BIDU).
LONDON — Three years after leaving the EU to chart its own course, Britain finds itself caught between two economic behemoths in a brewing transatlantic trade war.
In one corner sits the United States, whose Congress in August passed the Biden administration’s much-vaunted $369 billion program of green subsidies, part of the Inflation Reduction Act (IRA).
In the opposing corner is the European Union, which fears Washington’s subsidy splurge will pull investment — particularly in electric vehicles — away from Europe, hitting carmakers hard.
The EU is preparing its own retaliatory package of subsidies; Washington shows little sign of changing course. Fears of a trade war are growing fast.
Now sitting squarely outside the ring, the U.K. can only look on with horror, and quietly ask Washington to soften the blow. But there are few signs the softly-softly approach is bearing fruit. Britain now risks being clobbered by both sides.
“It’s not in the U.K.’s interest for the U.S. and EU to go down this route,” said Sam Lowe, a partner at Flint Global and expert in U.K. and EU trade policy. “Given the U.K.’s current economic position, it can’t really afford to engage in a subsidy war with both.” The British government has just unleashed a round of fiscal belt-tightening after a market rout, following months of political turmoil.
For iconic British motor brands, the row over the Biden administration’s IRA comes with real costs.
The U.S. is the second-largest destination for British-made vehicles after the EU, and the automotive sector is one of Britain’s top goods exporters.
Manufacturers like Jaguar Land Rover have warned publicly about the “very serious challenges” posed by the new U.S. law and its plan for electric vehicle tax credits aimed at boosting American industry.
Kemi on the case
U.K. Trade Secretary Kemi Badenoch has for months been privately urging top U.S. officials to soften the impact of the electric vehicle subsidies on Britain by carving out exemptions, U.K. officials said.
When Commerce Secretary Gina Raimondo visited London in early October, Badenoch pushed her to rethink the strategy. The U.K. trade chief brought that same message to Washington in a series of private meetings earlier this month, including at a sit-down with Deputy Treasury Secretary Wally Adeyemo.
Badenoch has “raised this issue on many levels,” an official from the U.K.’s Department for International Trade said, citing conversations with U.S. Ambassador to Britain Jane Hartley, with Secretary Raimondo, “and with members of the Biden administration and senior representatives of both parties.”
The Cabinet minister has also spoken out in public, telling the pro-free market Cato Institute in Washington earlier this month that “the substantial new tax credits for electric cars not only bar vehicles made in the U.K. from the U.S. market, but also affect vehicles made in the U.S. by U.K. manufacturers.”
U.S. Secretary of Commerce Gina Raimondo | Mandel Ngan/AFP via Getty Images
Badenoch’s comments echo concerns raised by both British automotive lobby group the Society of Motor Manufacturers and Traders (SMMT), and by Jaguar Land Rover, in comments filed with the U.S. Treasury Department.
The SMMT warned that Biden’s green vehicle package has several “elements of concern that risk creating an uneven competitive environment, with U.K.-based manufacturers and suppliers potentially penalised.” The lobby group is taking aim at the credit scheme’s requirement for green vehicles to be built in North America, with significant subsidies available only if critical minerals are sourced from the U.S. or a U.S. ally.
In response to Washington’s plans, the EU is preparing what could amount to billions in subsidies for its own industries hit by the U.S. law, which also offers tax breaks to boost American green businesses such as solar panel manufacturers. Britain faces being squeezed in both markets, while lacking any say in whatever response Brussels decides.
Protectionism that impacts like-minded allies “isn’t the answer to the geopolitical challenges we face,” the British trade department official warned, adding “there is a serious risk” the law disrupts “vital” global supply chains of batteries and electric vehicles.
The conversations Badenoch had this month in Washington were “reassuring,” the official added. “But it’s for them to address and find solutions.”
‘Ton of work to do’
Yet others believe Badenoch will have a hard time getting her colleagues in the U.S. — now cooling on a much-touted bilateral trade deal — to take action. “The U.S. is minimally focused on how any of their policies are going to impact the U.K.,” admitted a U.S.-based representative of a major business group.
While Britain and the U.S. are “very close allies”, they added, those in Washington “just don’t really view the U.K. as an interesting trade partner and market right now.” The U.S. is more focused, they noted, on pushing back against China, meaning Badenoch has “a ton of work to do” getting the administration to soften the IRA.
Nevertheless the U.S. is still working out how its law will actually be implemented, the business figure said, and is assembling a working group on how the IRA impacts trade allies. This has the potential, they added, to “alleviate a lot of the concerns coming out of the U.K.”
Late Tuesday evening, the SMMT called on the British government to provide greater domestic support for the sector as it prepares to ramp up its own electric vehicle production. The group wants an extension past April on domestic support for firms’ energy costs; a boost to government investment in green energy sources; and a speedier national rollout of charging infrastructure and staff training.
In the meantime, Britain’s options appear limited.
Newly manufactured Land Rover and Range Rover vehicles parked and waiting to be loaded for export | Paul Ellis/AFP via Getty Images
The U.K. “could consider legal action” and haul the U.S. before the World Trade Organization or challenge the EU through provisions in the post-Brexit Trade and Cooperation Agreement, said Lowe of consultancy Flint. “But — to be blunt — neither of them care what we have to say.”
Anna Jerzewska, a trade advisor and associate fellow at the UK Trade Policy Observatory, suggested pressing ahead “with your own domestic policy and efforts to support strategic industries is perhaps more important” than complaining about foreign subsidy schemes. But she noted that after a “chaotic” political period, Britain is “likely to take longer to respond to external changes and challenges.”
And in truth, Britain “can’t afford to out-subsidize the U.S. and EU,” said David Henig, a trade expert with the European Centre For International Political Economy think tank.
Outside the EU, Britain could work to rally allies such as Japan and South Korea who are also unhappy with the Biden administration’s protectionist measures, he noted. “But I don’t think we’re in that position,” Henig said, as it would take a concerted diplomatic effort, and the U.K.’s automotive sector would “have to be well positioned” in the first place, not struggling as it is. He predicted London’s lobbying in Washington and Brussels is “not going to get anywhere.”
The transatlantic reset between Brussels and Washington is on life support.
After four years of discord and disruption under Donald Trump, hopes were high that Joe Biden’s presidency would usher in a new era of cooperation between Europe and the U.S. after he declared: “America is back.”
But when senior officials from both sides meet in Washington on Monday for a twice-yearly summit on technology and trade, the mood will be gloomier than at any time since Trump left office.
The European Union is up in arms over Biden’s plans for hefty subsidies for made-in-America electric cars, claiming these payments, which partly kick in from January 1, are nothing more than outright trade protectionism.
At the same time, the U.S. is increasingly frustrated the 27-country bloc won’t be more aggressive in pushing back against China, accusing some European governments of caving in to Beijing’s economic might.
Those frictions are expected to overshadow the so-called EU-U.S. Trade and Technology Council (TTC) summit this week. At a time when the Western alliance is seeking to maintain a show of unity and strength in the face of Russian aggression and Chinese authoritarianism, the geopolitical stakes are high.
Biden may have helped matters last Thursday, during a joint press conference with French President Emmanuel Macron, by saying he believed the two sides can still resolve some of the concerns the EU has raised.
“We’re going to continue to create manufacturing jobs in America but not at the expense of Europe,” Biden said. “We can work out some of the differences that exist, I’m confident.”
But, as ever, the details will be crucial.
It is unclear what Biden can do to stop his Buy American subsidies from hurting European car-markers, for example, many of which come from powerful member countries like France and Germany. The TTC summit offers a crucial early opportunity for the two sides to begin to rebuild trust and start to deliver on Biden’s warm rhetoric.
Judging by the TTC’s record so far, those attending, who will include U.S. Secretary of State Antony Blinken, will have their work cut out.
More than 20 officials, policymakers and industry and society groups involved in the summit told POLITICO that the lofty expectations for the TTC have yet to deliver concrete results. Almost all of the individuals spoke on the condition of anonymity to discuss sensitive internal deliberations.
U.S. Secretary of State Antony Blinken will be attending the TTC | Sean Gallup/Getty Images
Some officials privately accused their counterparts of broken promises, particularly on trade. Others are frustrated at a lack of progress in 10 working groups on topics like helping small businesses to digitize and tackling climate change.
“With these kinds of allies, who needs enemies?” said one EU trade diplomat when asked about tensions around upcoming U.S. electric car subsidies. A senior U.S. official working on the summit hit back: “We need the Europeans to play ball on China. So far, we haven’t had much luck.”
Much of the EU-U.S. friction is down to three letters: IRA.
Biden’s Inflation Reduction Act, which provides subsidies to “Buy American” when it comes to purchasing electric vehicles, has infuriated officials in Brussels who see it as undermining the multilateral trading system and a direct threat to the bloc’s rival car industry.
“The expectation the TTC was established to provide a forum for precisely these advanced exchanges with a view to preventing trade frictions before they arise appears to have been severely frustrated,” said David Kleimann, a trade expert at the Bruegel think tank in Brussels.
Biden’s room for flexibility is limited. The context for the subsidies and tax breaks is his desire to make good on his promise to create more manufacturing jobs ahead of an expected re-election run in 2024. The U.S. itself is hovering on the edge of a possible recession.
In addition, the U.S. trade deficit with the EU hit a record $218 billion in 2021, second only to the U.S. trade deficit with China. The U.S. also ran an auto trade deficit of about $22 billion with European countries, with Germany accounting for the largest share of that.
Washington has few, if any, meaningful policy levers at its disposal to calm European anger. During a recent visit to the EU, Katherine Tai, the U.S. trade representative, urged European countries to pass their own subsidies to jumpstart Europe’s electric car production, according to three officials with knowledge of those discussions.
“It risks being the elephant in the room,” said Emily Benson, a senior fellow at the Center for Strategic and International Studies, a Washington-based think tank, when asked about the electric car dispute.
After a push from Brussels, there were increasing signs on Friday that the TTC could still play a role. In the latest version of the TTC’s draft declaration, obtained by POLITICO, both sides commit to addressing the European concerns over Biden’s subsidies, including via the Trade and Tech Council. Again, though, there was no detail on how Washington could resolve the issue.
Politicians across Europe are already drawing up plans to fight back against Biden’s subsidies. That may include taking the matter to the World Trade Organization, hitting the U.S. with retaliatory tariffs or passing a “Buy European Act” that would nudge EU consumers and businesses to buy locally made goods and components.
Officials and business leaders pose for a photo during the TTC in September 2021 | Pool photo by Rebecca Droke/AFP via Getty Images
Privately, Washington has not been in the mood to give ground. Speaking to POLITICO before Biden met Macron, five U.S. policymakers said the IRA was not aimed at alienating allies, stressing that the green subsidies fit the very climate change goals that Europe has long called on America to adopt.
“There’s just a huge amount to be done and more frankly to be done than the market would provide for on its own,” said a senior White House official, who was not authorized to speak on the record. “We think the Inflation Reduction Act is reflective of that type of step, but we also think there is a space here for Europe and others, frankly, to take similar steps.”
China tensions
Senior politicians attending the summit are expected to play down tensions this week when they announce a series of joint EU-U.S. projects.
These include funds for two telecommunications projects in Jamaica and Kenya and the announcement of new rules for how the emerging technology of so-called trustworthy artificial intelligence can develop. There’s also expected to be a plan for more coordination to highlight potential blockages in semiconductor supply chains, according to the draft summit statement obtained by POLITICO.
Yet even on an issue like microchips — where both Washington and Brussels have earmarked tens of billions of euros to subsidize local production — geopolitics intervenes.
For months, U.S. officials have pushed hard for their European counterparts to agree to export controls to stop high-end semiconductor manufacturing equipment being sent to China, according to four officials with knowledge of those discussions.
Washington already passed legislation to stop Chinese companies from using such American-made hardware. The White House had been eager for the European Commission to back similar export controls, particularly as the Dutch firm ASML produced equipment crucial for high-end chipmaking worldwide.
Yet EU officials preparing for the TTC meeting said such requests had never been made formally to Brussels. The draft summit communiqué makes just a passing reference to China and threats from so-called non-market economies.
Unlike the U.S., the EU remains divided on how to approach Beijing as some countries like Germany have long-standing economic ties with Chinese businesses that they are reluctant to give up. Without a consensus among EU governments, Brussels has little to offer Washington to help its anti-China push.
“In theory, the TTC is not about China, but in practice, every discussion with the U.S. is,” said one senior EU official, speaking on the condition of anonymity. “If we talk with Katherine Tai about Burger King, it has an anti-China effect.”
Gavin Bade, Clea Caulcutt, Samuel Stolton and Camille Gijs contributed reporting.
PRAGUE — U.S. Trade Representative Katherine Tai traveled more than 4,000 miles to prevent a transatlantic trade war over electric vehicles, but her EU counterparts signaled on Monday that they would be a tough crowd to win round.
The growing spat hinges on U.S. legislation that encourages consumers via tax credits to “Buy American” when it comes to choosing an electric car.
At a time when the U.S. and Europe want to present a united front against Russia, this protectionist measure has triggered outrage in many EU countries, including France and Germany, two leading European carmaking nations. Beyond the EU, China, Japan and South Korea have also voiced concern.
After speaking with Tai at a meeting of EU ministers in Prague, the bloc’s trade chief Valdis Dombrovskis predicted it would be difficult to resolve the dispute.
“It will not be easy to fix it — but fix it we must,” he said.
Among the 27 EU countries, anxiety about the U.S. measure is growing. Sweden’s new trade minister, Johan Forssell, whose country takes over the presidency of the Council of the EU in January, told POLITICO on Sunday that aspects of the U.S. legislation were “worrying” and “not in accordance with [World Trade Organization] rules.”
Another senior official stressed: “It’s not only one or two member states, which are concerned … It’s also the small ones; they will have no access at all” to the U.S. market.
French President Emmanuel Macron and German Chancellor Olaf Scholz agreed over lunch last week that the EU should retaliate if Washington pushed ahead with the controversial bill. Macron floated the idea of a “Buy European Act” to strike back.
The new tax credits for electric vehicles are part of a huge U.S. tax, climate and health care package, known as the Inflation Reduction Act, which passed the U.S. Congress in August.
The idea is that a U.S. consumer can claim back $7,500 of the value of an electric car from their tax bill. To qualify for that credit, however, the car needs to be assembled in North America and contain a battery with a certain percentage of the metals mined or recycled in the U.S., Canada or Mexico.
Czech Trade Minister Jozef Síkela, whose country currently holds the presidency of the Council of the EU, said that European carmakers wanted to qualify for the scheme, just as the North Americans do.
In its current form, the bill is “unacceptable,” and “is extremely protective against exports from Europe,” said Síkela as he walked into Monday’s meeting. “We simply expect that we will get the same status as Canada and Mexico.”
U.S. Trade Representative Katherine Tai and European Commission Executive Vice President Valdis Dombrovskis | Jim Watson/AFP via Getty Images
“But we need to be realistic,” Síkela told reporters later. “This is our starting point in the negotiations and we’ll see what we’ll manage to negotiate at the end.”
In a bid to soothe tensions, a joint task force was set up last week by the European Commission and the U.S. The task force is supposed to meet at the end of this week, although the exact date isn’t yet fixed, according to thesenior official.
Asked whether Brussels would retaliate should no agreement be struck with Washington, Dombrovskis took a cautious approach: “Setting up this task force is already … a response of us, raising those concerns … At this stage, we are focusing on a negotiated solution before considering what other options there may be.”
The midterm elections in the U.S., where President Joe Biden’s Democrats look likely to lose ground, compound the difficulties.
It doesn’t seem like the tensions will be eased by the next Trade and Technology Council, which takes place between U.S. and European negotiators in early December.
Dismay over the U.S. subsidies has overshadowed the preparatory work for the next TTC meeting, for which the EU and businesses on both sides of the Atlantic want to see rapid concrete results to avoid the perception that the format is simply a talking shop.
Tai herself had no immediate comment in Prague, but later released a statement on her meeting with Síkela that gave no hint of a breakthrough.
“Ambassador Tai and Minister Síkela discussed the ongoing work of the Trade and Technology Council, and the importance of achieving meaningful results for the December TTC Ministerial and beyond. They also discussed the newly-created U.S.-EU Task Force on the Inflation Reduction Act,” the statement said.
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BERLIN/PARIS — After publicly falling out, Olaf Scholz and Emmanuel Macron have found something they agree on: mounting alarm over unfair competition from the U.S. and the potential need for Europe to hit back.
The German chancellor and the French president discussed their joint concerns during nearly three-and-a-half hours of talks over a lunch of fish, wine and Champagne in Paris on Wednesday.
They agreed that recent American state subsidy plans represent market-distorting measures that aim to convince companies to shift their production to the U.S., according to people familiar with their discussions. And that is a problem they want the European Union to address.
The meeting of minds on this issue followed public disagreements in recent weeks on key political issues such as energy and defense, fracturing what is often seen as the EU’s central political alliance between its two biggest economies.
But even though their lunch came against an awkward backdrop, both leaders agreed that the EU cannot remain idle if Washington pushes ahead with its Inflation Reduction Act, which offers tax cuts and energy benefits for companies investing on U.S. soil, in its current form. Specifically, the recently signed U.S. legislation encourages consumers to “Buy American” when it comes to choosing an electric vehicle — a move particularly galling for major car industries in the likes of France and Germany.
The message from the Paris lunch is: If the U.S. doesn’t scale back, then the EU will have to strike back. Similar incentive schemes for companies will be needed to avoid unfair competition or losing investments. That move would risk plunging transatlantic relations into a new trade war.
Macron was the first to make the stark warning public. “We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers,” the French president said Wednesday night in an interview with TV channel France 2, referring specifically to state subsidies for electric cars.
Scholz and Macron agreed the EU must act if the US progresses a ‘Buy American’ act offering incentives for companies investing on US soil, which would particularly affect French and German electric vehicle industries | David Hecker / Getty Images
Macron also mentioned similar concerns about state-subsidized competition from China: “You have China that is protecting its industry, the U.S. that is protecting its industry and Europe that is an open house,” Macron said, adding: “[Scholz and I] have a real convergence to move forward on the topic, we had a very good conversation.”
Crucially, Berlin — which has traditionally been more reluctant when it comes to confronting the U.S. in trade disputes — is indeed backing the French push. Scholz agrees that the EU will need to roll out countermeasures similar to the U.S. scheme if Washington refuses to address key concerns voiced by Berlin and Paris, according to people familiar with the chancellor’s thinking.
Scholz is not a big fan of Macron’s wording of a “Buy European Act” as it evokes the nearly 90-year-old “Buy American Act,” which is often criticized for being protectionist because it favors American companies. But the chancellor shares Macron’s concerns about unfair competitive advantages, the people said.
Earlier this month, Scholz said publicly that Europe will have to discuss the Inflation Reduction Act with the U.S. “in great depth.”
In a blow to Germany’s industrial core, chemical giant BASF announced plans Wednesday to reduce its business activities and jobs in Germany, with company chief Martin Brudermüller citing heightened gas prices — which he criticized for being six times as high as in the U.S. — as well as increasing EU regulation as the reason.
“The decisions of a successful company like BASF show that we need to improve the overall attractiveness of Germany as a business location,” German Finance Minister Christian Lindner said in a tweet, vowing to take various measures such as “tax relief for private investments.”
Before bringing out the big guns, though, Scholz and Macron want to try to reach a negotiated solution with Washington. This should be done via a new “EU-U.S. Taskforce on the Inflation Reduction Act” that was established during a meeting between European Commission President Ursula von der Leyen and U.S. Deputy National Security Adviser Mike Pyle on Tuesday.
The taskforce of EU and U.S. officials will meet via videoconference toward the end of next week, underlining the seriousness of the European push.
On top of that, EU trade ministers will gather for an informal meeting in Prague next Monday, with U.S. trade envoy Katherine Tai planning to attend to discuss the tensions.
In Brussels, the Commission is also looking with concern at Macron’s wording of a “Buy European Act,” which evokes protectionist tendencies that the EU institution has long sought to fight.
“Every measure we take needs to be in line with the World Trade Organization rules,” a Commission official said, adding that Europe and the U.S. should resolve differences via talks and “not descend into tit-for-tat trade war measures as we experienced them under [former U.S. President Donald] Trump.”
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PARIS — Emmanuel Macron called for a “Buy European Act” on Wednesday to protect carmakers on the Continent in the face of competition from China and in response to the United States’ own controversial scheme to incentivize domestic production.
Speaking on TV channel France 2, the French president criticized the European Union as being “too open” on the topic of state subsidies for electric cars as it seeks to accelerate its transition to greener energy sources.
“We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers,” Macron said. “You have China that is protecting its industry, the U.S. that is protecting its industry and Europe that is an open house.”
France has been leading the charge against Washington’s recent Inflation Reduction Act, which includes tax incentives for U.S. consumers to “Buy American” when it comes to choosing an electric car. The European Union, South Korea, Japan, China and Russia have all complained at the World Trade Organization that this measure violates international trade rules by unfairly discriminating against foreign manufacturers.
French Finance Minister Bruno Le Maire also recently slammed the U.S. scheme as “jeopardizing the level playing field” and raising the risk of a “new trade war.”
Macron said in the TV interview he had discussed an EU response to U.S. trade barriers during a lunch with German Chancellor Olaf Scholz at the Elysée Palace earlier on Wednesday. However, it was unclear whether the two leaders share the same view on exactly what steps to take.
“[Scholz and I] have a real convergence to move forward on the topic, we had a very good conversation,” Macron said.
Relations between the French president and his German counterpart have been fraught amid disagreements over energy, defense and the economy. But discontent over the U.S. legislation appears to be an area where they converge, given both their countries host major carmakers like Renault and Mercedes-Benz.
According to an adviser to the French presidency, the two leaders agreed to push the European Commission to prepare a response to the U.S. Inflation Reduction Act.
Giorgio Leali contributed reporting.
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PARIS — U.S. President Joe Biden needs to watch out; France is resuming its traditional role as Europe’s troublemaker on the transatlantic trade front.
It had seemed like the bad blood between Brussels and Washington was easing on Biden’s watch. Facing a common foe in China, the EU and the U.S. last year struck a truce on the tariffs that former President Donald Trump slapped on European steel and aluminium. Over this year, Russia’s war against Ukraine has meant that America and Europe needed to present a united front, at least politically.
Cracks are now starting to re-emerge, however. The EU is furious that the U.S. is pouring subsidies into the homegrown electric car industry. Accusing Washington of protectionism, Europe is now threatening to draw up its own defenses.
Unsurprisingly, French President Emmanuel Macron is leading the charge. “The Americans are buying American and pursuing a very aggressive strategy of state aid. The Chinese are closing their market. We cannot be the only area, the most virtuous in terms of climate, which considers that there is no European preference,” Macron told French daily Les Echos.
Upping the ante, he called on Brussels to support consumers and companies that buy electric cars produced in the EU, instead of ones from outside the bloc.
There are good reasons why the Europeans are fretting about their trade balances.
The war has delivered a huge terms-of-trade shock, with spiraling energy costs hauling the EU into a yawning bloc-wide trade deficit of €65 billion in August, from only €7 billion a year earlier. In one manifestation of those strains, Europe’s growing reliance on American liquefied natural gas to substitute for lost Russian supplies has re-ignited tensions.
Macron’s comments are a reflection of EU consternation over Washington’s Inflation Reduction Act, which incentivizes U.S. consumers to “Buy American” when purchasinga greener car. The EU argues that requiring that car needs to be assembled in North America and contain a battery with a certain percentage of local content discriminate against the EU and other trade partners.
The European Commission hopes to convince Washington to find a diplomatic compromise for European carmakers and their suppliers. If not, that leaves the EU no choice but to challenge Washington at the World Trade Organization, EU officials and diplomats told POLITICO — even if a new transatlantic trade war is the last thing both sides want to spend their time and money on.
Macron’s comments “are clearly a response against the Inflation Reduction Act,” noted Elvire Fabry, a trade policy expert at the Institut Jacques Delors in Paris. “Macron plays the role of the bad cop, compared to the European Commission, which left Washington some political room to make adjustments,” she noted.
‘American domination’
The Commission hopes to find a diplomatic compromise with the U.S. for European carmakers and their suppliers | Ludovic Marin/AFP via Getty Images
France has traditionally been the bloc’s most outspoken country when it came to confronting Washington on a wide range of trade files. Paris, for instance, played a key role in killing a transatlantic trade agreement between the EU and U.S. (the so-called “TTIP”). Its digital tax angered U.S. Big Tech and triggered a trade war with the Trump administration.
More recently, during its rotating Council of the EU presidency, Paris focused on trade defense measures, which will give Brussels the power to retaliate against unilateral trade measures, including from the U.S.
New tensions are bad news for the upcoming meeting of the Trade and Tech Council early December, which so far has had trouble to show that it’s more than a glorified talking shop.
France won’t be left alone in a possible trade war on electric cars. According to Fabry, these tensions will bring Paris and Berlin closer, as the German car industry is also particularly affected by the U.S. measures.
But the “Buy American” approach is not the only bone of contention. The fact that Europe is increasingly relying on gas imports from the U.S. brought European discontent to the next level.
Although gas import prices fell in September from their all-time highs in August, they were still more than 2.5 times higher than they were a year ago. And, taking into account increased purchase volumes, France’s bill for imports of LNG multiplied more than tenfold in August, year on year, by one estimate.
Economy and Finance Minister Bruno Le Maire last week warned that Russia’s war against Ukraine should not result in “American economic domination and a weakening of Europe.” Le Maire criticized the U.S. for selling LNG to Europe “at four times the price at which it sells it to its own companies,” and called on Brussels to take action for a “more balanced economic relationship” between the two continents.
That very same concern is shared by some Commission officials, POLITICO has learned, but also among French industrialists.
It is “hardly contestable” that the U.S. had some economic benefits from the war in Ukraine and suffered less than Europe from its economic consequences, said Bernard Spitz, head of international and European affairs at France’s business lobby Medef.
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