Tag: Subsidies

Biden keeps ignoring Europe. It’s time EU leaders got the message

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Former United States President Donald Trump was a useful bogeyman for Europe. His successor, Joe Biden, is proving much trickier — a friend who says all the right things but leaves you in the lurch when it counts.

From Washington’s surprise withdrawal from Afghanistan to the transatlantic blowup over submarine sales to Australia (AUKUS) and, now, a growing spat over the Inflation Reduction Act (IRA), which offers tax incentives and subsidies to green U.S. businesses, the Biden administration has, time and again, caught Europe off guard.

At each new perceived slight, the Europeans express shock, frustration and dismay: How could Washington fail to consult its allies, or at the very least inform them of its plans? Meanwhile, the American response is always some variant of: Terribly sorry, we didn’t even think of that.

The underlying dynamic is one of polite indifference. Despite Washington’s renewed commitment to NATO and massive outlay of arms and funds to help Ukraine defend itself against Russia, the U.S. remains steadfastly focused on what most perceive to be its main existential challenge: China.

In that equation, Europe is often an afterthought. It’s just that many on this side of the Atlantic have failed to get the message — or draw conclusions of what it means for the bloc’s future — instead preferring to act out a script of outrage and remonstrance.

A current example is the blooming transatlantic argument over Biden’s IRA.

Months in the making, painstakingly hashed out on Capitol Hill, the legislation represents Washington’s best bipartisan effort thus far to decarbonize its economy and prepare for decoupling from China. The bill flags $369 billion for energy and climate programs, including billions in taxpayer-funded subsidies for the production of electric vehicles inside the U.S.

It just so happens that it’s a potential disaster for Europe.

Bruised and confused

Amid an energy crisis that has large parts of the European Union economy staring into an abyss, French President Emmanuel Macron has led the charge against Biden’s IRA, accusing Washington of maintaining a “double standard” on energy and trade. He’s called for Europe to respond in kind by rolling out its own subsidy plan, prompting a visit from U.S. Trade Representative Katherine Tai to an EU trade ministers’ meeting in Prague on October 31.

But rather than try to cajole them with concessions, Tai invited them to get on board the China train by rolling out their own subsidies — which isn’t what the Europeans wanted to hear.

According to an EU diplomat who spoke to POLITICO ahead of a trade ministers’ meeting on Friday, members of the bloc still hope that Biden will send the IRA back to Congress for resizing, a prospect U.S. officials say is about as likely as canceling Thanksgiving.

The result is that Europe is now back in familiar territory: Bruised, confused and scrambling for a response while failing to formulate its own cohesive strategy to contend with China. And instead of receiving solidarity from Washington in a time of war, they feel the U.S. has maneuvered itself into a perfect position to suck investment out of Europe.

The outlines of an EU response to the IRA did start to take shape earlier this week, when Paris and Berlin — only recently back on speaking terms after a falling out — jointly called for an EU plan to subsidize domestic industries.

But that plan is likely weeks, even months, away from becoming a reality. And even if all 27 EU countries manage to strike a deal, their leaders will be hard-pressed to inject anywhere near as much money into it as Washington has earmarked, as most EU countries are still howling in pain over the high price of gas — much of which they now import from liquid natural gas terminals in Texas.

Again, Biden’s America is looking after its interests while the EU’s left to groan about missed signals, hurt feelings and unfair practices.

The tragedy for Europe is that this is happening at a time when transatlantic relations are meant to be at an all-time high. Biden’s election, followed by the war in Ukraine and Washington’s massive investment in shoring up NATO’s eastern flank, was meant to signal the U.S.’s decisive return to the European sphere.

But what the Europeans are discovering is that the Ukraine war is just one facet of the U.S.’s larger strategic duel with China, which will always take precedence over EU interests.

That was true under Trump, and it remains true under his successor. It’s just that the message is delivered in a different style.

In the long run, Biden’s polite indifference may prove more deadly.

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Nicholas Vinocur

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November 24, 2022
EU plans subsidy war chest as industry faces ‘existential’ threat from US

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The EU is in emergency mode and is readying a big subsidy push to prevent European industry from being wiped out by American rivals, two senior EU officials told POLITICO.

Europe is facing a double hammer blow from the U.S. If it weren’t enough that energy prices look set to remain permanently far higher than those in the U.S. thanks to Russia’s war in Ukraine, U.S. President Joe Biden is also currently rolling out a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act.

EU officials fear that businesses will now face almost irresistible pressure to shift new investments to the U.S. rather than Europe. EU industry chief Thierry Breton is warning that Biden’s new subsidy package poses an “existential challenge” to Europe’s economy.

The European Commission and countries including France and Germany have realized they need to act quickly if they want to prevent the Continent from turning into an industrial wasteland. According to the two senior officials, the EU is now working on an emergency scheme to funnel money into key high-tech industries.

The tentative solution now being prepared in Brussels is to counter the U.S. subsidies with an EU fund of its own, the two senior officials said. This would be a “European Sovereignty Fund,” which was already mentioned in the State of the Union address by Commission President Ursula von der Leyen in September, to help businesses invest in Europe and meet ambitious green standards.

Senior officials said the EU had to act extremely quickly as companies are already making decisions on where to build their future factories for everything from batteries and electric cars to wind turbines and microchips.

Another reason for Brussels to respond rapidly is to avoid individual EU countries going it alone in splashing out emergency cash, the officials warned. The chaotic response to the gas price crisis, where EU countries reacted with all sorts of national support measures that threatened to undermine the single market, is still a sore point in Brussels.

European Commissioner Breton especially has led the pack in sounding alarm bells. At a meeting with EU industry leaders Monday, Breton issued his warning on the “existential challenge” to Europe from the Inflation Reduction Act, according to people in the room. Breton said it was now a matter of utmost urgency to “revert the deindustrialization process taking place.”

Breton was echoing calls from business leaders all over Europe warning about a perfect storm brewing for manufacturers. “It’s a bit like drowning. It’s happening quietly,” BusinessEurope President Fredrik Persson said.

The Inflation Reduction Act is a particular bugbear to EU carmaking nations — such as France and Germany — as it encourages consumers to “Buy American” when it comes to electric vehicles. Brussels and EU capitals see this as undermining global free trade, and Brussels wants to cut a deal in which its companies can enjoy the same American benefits.

With a diplomatic solution seeming unlikely and Brussels wanting to avoid an all-out trade war, a subsidy race now looks increasingly likely as a contentious Plan B.

To do that, it will be vital to secure support from Germany and from the more economically liberal commissioners such as trade chief Valdis Dombrovskis and competition chief Margrethe Vestager.

At a meeting of EU trade ministers on Friday, Brussels hopes to get more clarity from Berlin on whether they are willing to break their subsidy taboo.

France has long been calling for a counterstrike against Washington by funneling state funds into European industry to help industrial champions on the Continent. That idea is now also gaining traction in Berlin, which has traditionally been economically more liberal.

On Tuesday, German Economy Minister Robert Habeck and his French counterpart Bruno Le Maire issued a joint statement to call for an “EU industrial policy that enables our companies to thrive in the global competition especially through technological leadership,” adding that “we want to coordinate closely a European approach to challenges such as the United States Inflation Reduction Act.”

Apart from the trade ministers’ meeting on Friday, the idea will also informally be discussed among competition ministers next week. One official said European leaders will also discuss it on the margins of the Western Balkan summit on December 6 and at the European Council mid-December.

Hans von der Burchard, Giorgio Leali and Paola Tamma contributed reporting.

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Jakob Hanke Vela and Barbara Moens

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November 23, 2022
Germany mulls breaking subsidy taboo to avoid trade war with Biden

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BERLIN — With only six weeks to avoid a transatlantic trade showdown over green industries, the Germans are frustrated that Washington isn’t offering a peace deal and are increasingly considering a taboo-breaking response: European subsidies.

Europe’s fears hinge on America’s $369 billion package of subsidies and tax breaks to bolster U.S. green businesses, which comes into force on January 1. The bugbear for the Europeans is that Washington’s scheme will encourage companies to shift investments from Europe and incentivize customers to “Buy American” when it comes to purchasing an electric vehicle — something that infuriates the big EU carmaking nations like France and Germany.

The timing of this protectionist measure could hardly be worse as Germany is in open panic that several of its top companies — partly spurred by energy cost spikes after Russia’s invasion of Ukraine — are shuttering domestic operations to invest elsewhere. The last thing Berlin needs is even more encouragement for businesses to quit Europe, and the EU wants the U.S. to cut a deal in which its companies can enjoy the American perks.

A truce seems unlikely, however. If this spat now spirals out of control, it will lead to a trade war, something that terrifies the beleaguered Europeans. While the first step would be a largely symbolic protest at the World Trade Organization (WTO), the clash could easily slide precipitously back toward the tit-for-tat tariff battles of the era of former U.S. President Donald Trump.

This means that momentum is growing in Berlin for a radical Plan B. Instead of open tariff war with America, the increasingly discussed option is to rip up the classic free-trade rulebook and to play Washington at its own game by funneling state funds into European industry to rear homegrown green champions in sectors such as solar panels, batteries and hydrogen.

France has long been the leading advocate of strengthening European industry with state largesse but, up until now, the more economically liberal Germans have not wanted to launch a subsidy race against America. The sands are now shifting, however. Senior officials in Berlin say they are increasingly leaning toward the French thinking, should the talks with the U.S. not lead to an unexpected last-minute solution.

Berlin is the 27-nation bloc’s economic powerhouse, so it will be a decisive moment if Berlin ultimately decides to throw its might behind the state-led subsidy approach to an industrial race with the U.S.

Running out of time

The clock is ticking for a truce with Biden that looks increasingly unlikely.

Recent attempts by a special EU-U.S. task force to address EU concerns have met little enthusiasm on the American side to amend the controversial legislation, the European Commission told EU countries this week.

“There are only a few weeks left,” warned Bernd Lange, the chair of the European Parliament’s trade committee, adding that “once the act is implemented, it will be too late for us to achieve any changes.”

Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S., and Brussels could also strike back against what it sees as the discriminatory U.S. subsidies by imposing punitive tariffs. Warnings of a trade war are already overshadowing the runup to a high-level EU-U.S. meeting in Washington on December 5.

MEP Bernd Lange Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S. | Philippe Buissin/European Union

It’s precisely the kind of spat that the German government wants to avoid, as Chancellor Olaf Scholz hopes to forge unity among like-minded democracies amid Russia’s war and the the increasing challenges posed by China. Earlier this month, Scholz’s government made an overture to Washington by suggesting that a new EU-U.S. trade deal could be negotiated to resolve differences, but that proposal was quickly rejected.

There are sympathizers for the subsidies approach in Brussels, with officials at the EU’s executive saying powerful Internal Market Commissioner Thierry Breton is a leading proponent. Breton is already advocating for a “European Solidarity Fund” to help “mobilizing the necessary funding” to strengthen European autonomy in key sectors like batteries, semiconductors or hydrogen. Support from Germany could help Breton win the upper hand in internal EU strategy discussions over the more cautious Trade Commissioner Valdis Dombrovskis.

Breton will travel to Berlin on November 29 to discuss the consequences of the Inflation Reduction Act as well as industrial policy and energy measures with Scholz’s government.

The German considerations even echo calls from top officials of the Biden administration, including U.S. Trade Representative Katherine Tai, who are urging the EU to not engage in a transatlantic trade dispute and instead roll out their own industrial subsidies; a strategy that Washington also sees as way to reduce dependence on China.

Plan B

Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support if the negotiations with Washington fail to reach a solution, lending support to similar plans articulated by French President Emmanuel Macron, who will meet Biden on December 1 in Washington.

Although Scholz does not endorse Macron’s framing of the initiative as a “Buy European Act” (which sounds too protectionist for the Germans), the chancellor agrees that the EU cannot stand by idly if it faces unfair competition or lost investments, people familiar with his thinking said late last month.

Negative economic news, such as carmaker Tesla putting plans for a new battery factory in Germany on hold and instead investing in the U.S., or steelmaker ArcelorMittal partly closing operations in Germany, have increased calls in Berlin to consider more state support to counter a negative trend caused by both the U.S. scheme and high energy prices.

Although the official government line remains that Berlin is still holding out hope for a negotiated solution with Washington, officials in Berlin say that it could be possible to increase incentives for industries to locate the production of green technologies in Europe.

A spokesperson for the German Economy Ministry said that faced with the challenges stemming from the Inflation Reduction Act, “we will have to come up with our own European response that puts our strengths first … The aim is to competitively relocate green value creation in Europe and strengthen our own production capacities.”

The spokesperson warned, however, that both the U.S. and EU “must be careful that there is no subsidy race that prevents the best ideas from prevailing in the market,” and added: “Green technologies in particular thrive best in fair competition; protectionism cripples innovation.”

One important condition that could help Germany and the EU to safeguard said fair competition and to avoid the global free trade system descending into protectionist tendencies would be to ensure that any EU state subsidies remain in line with WTO rules. That means, in contrast to the U.S. law, that those subsidies would not discriminate between local and foreign producers.

German Chancellor Olaf Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support | Sean Gallup/Getty Images

Crucially, support is also coming from German industry.

“In the area of industrial policy and subsidies, we could look at measures that are compatible with WTO rules — as the EU is already doing in the chip sector,” said Volker Treier, the head of foreign trade at the German Chamber of Commerce.

Treier also stressed that “there must be no discrimination” against foreign investors, but added: “This explicitly does not rule out the possibility of settlement bonuses, which in turn should be available to investors from all countries who would be interested in such investment commitments in Europe.”

In Brussels, the Commission’s competition department has also made clear that it’s looking with an open mind at upcoming proposals.

“There are no instruments excluded a priori” when it comes to the EU’s response to the U.S. subsidies, the department’s state aid Deputy Director General Ben Smulders said Thursday.

Barbara Moens, Suzanne Lynch and Pietro Lombardi in Brussels and Laura Kayali and Clea Caulcutt in Paris contributed reporting.

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Hans von der Burchard

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November 17, 2022
America’s Tai faces uphill battle to defuse EU trade war fears

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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 the senior 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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Camille Gijs and Barbara Moens

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October 31, 2022
Scholz and Macron threaten trade retaliation against Biden

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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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Hans von der Burchard and Clea Caulcutt

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October 27, 2022
Emmanuel Macron calls for ‘Buy European Act’ to protect regional carmakers

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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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Clea Caulcutt

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October 26, 2022
France plays bad cop as transatlantic trade tensions ramp up

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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 purchasing a 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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Giorgio Leali and Barbara Moens

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October 17, 2022