Tag: Trade war

As Xi reemerges, Europe again falls prey to China’s divide-and-rule tactics

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BALI, Indonesia — Every European leader at this week’s G20 summit in Bali wanted a one-on-one meeting with Chinese President Xi Jinping.

Not everyone got one.

The Europeans’ desire to meet Xi was driven by the fact that this week was the first opportunity to meet the Chinese leader at a major diplomatic jamboree since the lockdowns of early 2020, when the coronavirus pandemic started in China and spread to the world.

The Europeans always had to accept that they were going to be fighting for the crumbs in terms of the timetable. U.S. President Joe Biden spent three and a half hours with Xi, while France’s President Emmanuel Macron had to be content with (a still perfectly respectable) 43 minutes.

China conspicuously revived its long-established tactic of courting specific EU countries and their national interests, something it has often used to destabilize Brussels. (When Brussels threatened an all-out trade war in 2013 over China undercutting the EU market in solar panels and telecoms equipment, China expertly shattered EU unity by threatening retaliatory action against French and Spanish wine, playing Paris and Madrid against EU trade officials.)

Once again in Bali, China took the canny nation-to-nation approach, meeting Macron, Spanish Prime Minister Pedro Sánchez, Italy’s Giorgia Meloni and the Netherlands’ Mark Rutte, while avoiding European Commission President Ursula von der Leyen and European Council President Charles Michel. A meeting with Michel, at least, had been widely expected in diplomatic circles.

China bristles at the EU designation that it is a “systemic rival” to Brussels, and instead decided to leverage its influence with individual European countries.

Take the meeting with Rutte. The Chinese leader’s main interest was that the Netherlands, home to chipmaker ASML, a company that makes key equipment for microchip manufacturing, should not join any EU-U.S. trade coalition seeking to box China out of new technologies.

“It is hoped that the Netherlands would enhance Europe’s commitment to openness and cooperation,” Xi noted in a readout of the Dutch meeting. Translation: Don’t make trade trouble over microchips.

With Sánchez, Xi played up the importance of China as a motor for tourism in Spain, a sector where Madrid is particularly interested in high-rolling visitors from Asia. “The two sides need to make good preparations for the China-Spain Year of Culture and Tourism to build greater popular support for China-Spain friendship,” Xi said.

Similarly, the Xinhua state news agency quoted Macron saying he wanted more cooperation on business, specifically in the aviation and civil nuclear energy sectors. The Chinese account of the Xi-Meloni meeting was that Beijing would import more “high-quality” goods — presumably of the luxury and gourmet variety — and would cooperate in manufacturing, energy and aerospace.

Macron cozies up to Xi

In a sign that Xi’s diplomatic strategy was paying dividends, Macron took a non-confrontational approach to Xi, even massaging the Chinese leader’s ego.

The Chinese embassy to Paris promoted a video by TikTok’s domestic Chinese equivalent Douyin, in which Macron passed his best wishes to China after Xi secured a norm-breaking new mandate. (Xi was appointed for a third term as Communist Party general secretary in a highly choreographed party congress.)

Macron also hailed Xi as a “sincere” figure who should “play the role of a mediator over the next few months” in stopping further Russian aggression against Ukraine — even though Beijing has shown no sign of being a good fit for such a role since the war broke out in February.

Ignoring China’s deadly Himalayan tensions with India, escalating tension with Taiwan or military adventurism in the South China Sea, Macron declared: “China calls for peace … [There is] a deep and I know sincere attachment to … the U.N. charter.”

Macron also told reporters he planned to visit China early next year. That looks like a riposte to the visit by German Chancellor Olaf Scholz, who visited China earlier this month. Scholz reportedly rejected Paris’ suggestion for a joint Macron-Scholz visit and decided to go alone with a delegation of big businesses.

“Macron needed this air-time with Xi enormously as he couldn’t be seen to be left out by China when the Americans and the Germans have dominated the headlines,” a Western diplomat said.

While Macron claimed that Xi agreed with him on a “call for respect for Ukraine’s territorial integrity and sovereignty,” China’s own readout made no such mention, saying only: “China stands for a ceasefire, cessation of the conflict and peace talks.”

Brussels boxed out

In stark contrast to the French, Spanish, Dutch and Italian leaders, the Brussels-based EU chiefs didn’t get a look-in.

In a show of Beijing’s continually negative view of the European Union, Xi decided not to go ahead with what POLITICO understood to be a near-certain plan for Michel, the one representing all 27 countries, to meet Xi.

That event, had it been allowed to take place, would have been significant in showcasing the possibility for the bloc’s smaller economies to also make their voice heard, since Xi would otherwise be busy dealing with the bigger players.

Xi’s change of heart over a meeting with Michel came shortly after the EU Council president’s prerecorded speech at a Shanghai trade expo was dropped. According to Reuters, he tried to call out Russia’s war of aggression against Ukraine in the speech, a message that was deemed too sensitive to Chinese ears.

Commission President von der Leyen, meanwhile, busied herself not with plans to line up a meeting with Xi, but on a joint show with Biden to focus on infrastructure financing for developing countries in order to rival China’s Belt and Road Initiative.

In a thinly veiled criticism of China’s approach to the new Silk Road, von der Leyen said: “The [West’s] Partnership Global for Infrastructure and Investment is an important geostrategic initiative in era of strategic competition.

“Together with leading democracies we offer values-driven, high-standard, and transparent infrastructure partnerships for low- and middle-income countries,” she said.

Her tone, though, proved to be a minority among European leaders during the G20 engagement with China.

“There’s no common message from the EU on China,” according to another EU diplomat in Bali. “But then there never was one.”

To the relief of European diplomats, at least Xi did not handle their bosses in the same way he treated Canada’s Prime Minister Justin Trudeau.

“Everything we discuss has been leaked to the paper; that’s not appropriate,” Xi told Trudeau through an interpreter in a clip recorded by Canadian media.

“That’s not … the way the conversation was conducted. If there is sincerity on your part …” Xi said, before Trudeau interrupted him, defending his country’s interest in working “constructively” with Beijing.

Xi took his turn to interrupt. “Let’s create the conditions first,” Xi said.

Go and stand in the corner, Justin.

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Stuart Lau

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November 16, 2022
How Businesses Can Navigate the Treacherous Waters of Trade Wars

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Opinions expressed by Entrepreneur contributors are their own.

In July, world leaders agreed to impose extra import tariffs on Russia during the G7 Summit, but the impact has been felt in other countries, including the U.S., with trade reduced by an estimated 62%, according to an analysis of the economic consequences of war. Russia’s war with Ukraine, and the subsequent trade sanctions placed on Russia, have impacted many businesses that rely on overseas trade. Now, businesses with overseas suppliers need to prepare for the uncertainty of trade tensions, tariffs and even the potential for embargos as the war escalates.

Just look at Shell. When they ceased operation and use of any Russian properties or partnerships for their oil production, they certainly felt the impact. Shell, like many other energy companies, had to fill the void left after they their relationship ended with Russian energy. Ultimately, this led to a rise in oil and gas prices across the world. This isn’t something felt only by big business, though, as everyone deals with the impact of tariffs either directly or indirectly.

If your business is facing tariffs, trade sanctions or the effects of war, here are some strategies to plan against the potential threat it could pose to your business internationally.

Related: Shell to Stop Buying Russian Oil and Gas

Eat the cost of the tariff and take a profit hit

Up until June of this year, the U.S.’s whiskey industry experienced lean times while exporting to the U.K. and EU, as Trump-era disputes over steel and aluminum trade resulted in steep tariffs on American whiskey. The whiskey companies had to monitor their profit margins and the number of tariffs their profits could take.

For international businesses experiencing periods of higher tariffs, it requires analyzing what costs can be absorbed and covered, and what sorts of belt-tightening and cost-cutting could help mitigate the impact of tariffs and to offset their cost on your business. While cutting costs can help improve profit margins, the negative effects of the tariff still exist, but at least consumers won’t see a drastic increase in price of your product. It’s all a matter of how much your business can stand to lose in profit margin and remain profitable domestically and abroad or if it can at all.

Pass the cost onto the consumer

On the other hand, a business always has the option to raise its prices to offset the tariffs’ impact on its bottom line. With that, however, comes the risk that customers may no longer want to buy your product.

Harvard Business Review emphasized that risk can be offset, though, if your business has an honest approach to explaining why it’s raising its prices. Communication is key. Leveling with your customers and being honest regarding the realistic implications of a trade war go a long way.

Related: What the Invasion of Ukraine Really Means for Business

Insure against the risk of a trade war

Transferring the risk by insuring against it is another option. Risks from tariffs can, in many cases, be included in Business Interruption Due to Legislative insurance. However, the trade-related risk is ever-evolving and complex, which can make it difficult and costly to insure in the third-party commercial insurance market. This is where captive insurance can be an option.

Captive policies often have fewer policy exclusions than commercial insurance policies. Captive insurance also negates the perceived sunk cost of paying insurance for a risk that doesn’t materialize.

For example, insuring against tariff risk for 10 years without any losses to tariffs occurring over the course of those 10 years would equate to money out the door. Outside of the comfort of knowing you’re insured, the business really has nothing to show for the premiums paid over that decade.

With captive insurance, however, your business can retain profits when claims aren’t paid. Thus, allowing for a build-up of cash reserves and benefiting the balance sheet of your business. This makes captive insurance a very effective tool especially in times like now where many businesses have been left scrambling after the sweeping sanctions against Russia and high inflation.

Related: This Insurance Strategy Could Save You Thousands

Decide whether to exit a market or category completely or find a supplier not subject to tariffs

Tariffs cut both ways, even though they exist to operate as barriers to prevent competing foreign products and businesses from damaging domestic industries. Just look to the specific industry of washing machines as tariffs introduced by the U.S. during the Trump presidency resulted in washer prices rising by almost 12%, according to economists at the University of Chicago and Federal Reserve.

This resulted in domestic business owners being left having to pay their own domestic government tariffs for buying the products instead of the country they imported them from. As you can imagine, this has implications for international business owners as well, especially in industries like agriculture where the World Trade Organization cites 100% of products as having a tariff.

Related: 2 Years Since Trade Deal with China, Tariffs Aren’t Working for American Businesses

For the businesses and consumers that needed those washers, they were left paying the increased price for them instead of China or other countries targeted by U.S. tariffs. According to UCLA Anderson Review, additional studies have also concluded that the trade war hurt U.S. consumers and companies more than it did China.

The example illustrates why having an international supplier that isn’t affected by the sanctions or tariffs faced by your company or products from your country is very important. This option is, however, mostly reserved for businesses that can afford to move major portions of their supply chain to other countries — making this option limited to few businesses. Partnering with a business in a country without the same tariffs or sanctions is also an option, but again, has many logistical complexities few businesses are prepared for.

Although there are immediate implications concerning the sanctions against Russia that can potentially decimate a supply chain, it’s crucial for businesses to keep in mind that the impact will also be felt long-term. Trade wars typically slow economic growth. Thus, it behooves businesses to start now and conduct a risk assessment in relation to both the sanctions and the potential for an economic slowdown. Even if your business isn’t impacted now, it could be in the future.

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Randy Sadler

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November 9, 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
Almost everyone’s a loser: EU-UK trade sharply lower than in a world without Brexit

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DUBLIN — Brexit has inflicted deeper opportunity costs on U.K.-EU trade than previously estimated, according to a new Irish study that compares the weakness of actual post-2020 goods flows to a parallel universe where Britain stayed within the single market.

The Economic and Social Research Institute (ESRI) in Dublin found that Britain’s exit has cut the potential value of goods exports to Europe by 16 percent, while EU exports to the U.K. were even more sharply lower, representing a 20 percent loss in potential sales.

The ESRI authors from Trinity College Dublin used a hybrid model that combined U.K. and EU data. They made a central assumption that, had Brexit not happened, U.K. import and export levels with European partners would have closely mirrored the EU’s relatively stronger internal trade performance last year.

The ESRI found that, instead, trade suffered in both directions — but in significantly different ways.

While many U.K. firms producing goods on low profit margins have stopped shipping entirely to the EU, goods flows into the U.K. largely have continued but at reduced volumes. The ESRI said this reflected the contrast in post-Brexit border regimes. While the U.K. has imposed few if any post-Brexit regulatory constraints on EU imports, British exports now face full EU customs and sanitary checks that increase costs and delays, making low-margin products unprofitable.

The ESRI found that U.K. exporters were losing opportunities and market share in most EU countries, most strikingly in their closest trading partner, Ireland, where the value of British goods last year slumped by 40 percent versus the no-Brexit model. Other sharp fallers included Spain (32 percent), Sweden (25) and Germany (24).

The lone EU member to record any U.K. import gains in the ESRI’s model was Luxembourg, up an eye-popping 76 percent. While the ESRI didn’t detail any reason why, the U.K. government pinpointed power generators as its top 2021 goods export to the diminutive duchy.

In the other direction of trade, only two EU nations managed above-expectations gains in exports to Britain: Latvia (38 percent) and Cyprus (33). Several others noted no discernible post-Brexit decline, including food and drink powerhouse Ireland.

But exporters in most EU states last year pruned shipments in line with what the report identified as the reduced appeal and certainty of the U.K. market.

The estimated 2021 value of those exports, compared to the report’s scenario where Britain stayed an EU member, was down most sharply in Malta (46 percent), followed by Finland (33), France and Greece (29), the Netherlands (27), Belgium (26), Poland (21), Portugal (20), Spain and Sweden (19), Germany (14) and Italy (12).

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Shawn Pogatchnik

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October 19, 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