Macron visits the U.S.: the diplomatic pulse to avoid a transatlantic trade war
Emmanuel Macron’s trip to Washington this week is shaping up as a crucial diplomatic track as Europe tries to persuade the US to relax its policies vis-à-vis the EU. The Inflation Reduction Act is the latest thorn in the side of the subsidy tensions across the Atlantic hitting the Old Continent’s electric vehicle exports. A transatlantic trade war would be inevitable, in the event of a refusal to modify it, as allies respond to the global effects of the Russian war in Ukraine.
Two former allies on the brink of a trade war that they are trying to stop.
President Emmanuel Macron’s three-day official trip to the United States has been announced with pomp by the White House and described by spokesman John Kirby as the arrival of the “dynamic leader” of Washington’s oldest ally.
But behind the first state visit under Joe Biden’s administration lies a series of disagreements that the two leaders will try to untangle, marked especially by the commercial plane.
The fuse that could ignite the umpteenth trade conflict in history between Europe and the United States lies in the Inflation Reduction Act (IRA), which Joe Biden signed into law on August 16.
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The rule, passed in an attempt to mitigate the inflationary effects in the midst of the Russian war in Ukraine, entails a subsidy package of around $370 billion for the construction of wind turbines, solar panels and microprocessors.
The measure also includes up to 7,500 dollars in subsidies for buyers of electric vehicles manufactured on US soil, a blow for this economic sector in the Old Continent, where France and Germany are the main producers of this type of cars.
From the other side of the Atlantic, they claim that the United States would be taking advantage of the first conflict in Europe since the Balkan War in the 1990s to build a commercial advantage over the European Union (EU), its political ally but economic rival.
Brussels says the Biden administration’s extraordinary contributions to its industries, which favors companies like Elon Musk’s Tesla, exclude Germany’s BMW and France’s Renault from the U.S. market and leave Germany’s BMW and France’s Renault at a disadvantage.
“I think this is not in line with the rules of the World Trade Organization (WTO) and is not in line with friendship,” Macron stressed in early November after a meeting with representatives of 50 French industrial sites.
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“A protectionist and “aggressive” approach: Macron will try to dissuade Biden”.
The main argument from the European side is that the first power must show greater solidarity with the Old Continent, which is bearing the worst economic burden from Vladimir Putin’s war and Moscow’s respective hydrocarbon sanctions that have impacted the global market.
As if it were not irritating enough that EU energy prices are now well above those of the U.S., Europeans are outraged at their partner’s new trade measures that put them at a disadvantage.
Against a backdrop of growing frustration in Europe, the U.S., which is energy independent due to the development of shale or unconventional oil and gas, benefits from lower and more stable prices.
Macron has already accused Washington of adopting an “aggressive” protectionist approach and claims that US gasoline prices are not “friendly”.
In this regard, the Elysee Palace noted that during his visit, the French leader will push for “more transatlantic unity” on investment policies and the impact of the war in Ukraine.
The concern is not for nothing, as the US plan, which could create a significant distortion of competition, could cause France to lose “10 billion euros in investment” and “10,000 potential jobs”, as assured this week by the Prime Minister, Elisabeth Borne.
Macron has a clear list of demands. The key breakthrough for Macron would be some kind of concession for European allies to get equal rights in IRA subsidy deals, as happened with Canadian and Mexican companies.
On gas, it raises a thornier issue as prices are set by the market, but the Elysée says the U.S. president has several “options” to reduce prices.
Biden “must take into account what happens after the war. The EU is bearing the brunt of sanctions and the impact of this effort against Russia is quite clear (…) There is a risk that imbalances will worsen as the EU pays higher energy prices and the US takes steps to boost investment in the industry,” a French executive official said.
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However, some experts stress that the Biden Administration is unlikely to back down on its push. “It is important to understand that this is not in the spirit of the United States, which has always privileged its trade and its economy to the detriment of other powers,” explained Stéphanie Villers, an economist at PricewaterhouseCoopers.
A tit-for-tat measure?
The risk is that in the face of a possible refusal by Washington, the EU is considering a series of countermeasures. Among them, the creation of a law to buy only products from Europe to protect green energy industries in their countries and in response to similar action on U.S. purchases of local products that compete with those of their European allies.
If Biden does not accede to the requests, a transatlantic trade war could be inevitable, amid a tit-for-tat policy in the face of possible retaliatory tariffs.
If the US does not amend its Inflation Reduction Act, the EU should use “coercive” measures to ensure that European companies benefit from the same conditions as US companies, French Trade Minister Olivier Becht said last Friday, November 25.
Macron himself has repeatedly signaled that he would not stand idly by and watch the Americans and Chinese pursue aggressive state subsidy policies. France is pushing for the EU to roll out its own wave of subsidies and reserve them for European manufacturers.
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However, there is still no consensus and in the face of the risks posed, Brussels may consider supporting its industries, but leaving subsidies out of the equation. “We have to be very careful with subsidies to avoid a trade war,” stressed Jozef Sikela, Minister of Industry and Trade of the Czech Republic, which holds the EU’s rotating presidency.
“The question is whether Europe really has room to maneuver to counter these provisions. We could implement the same protections at the European level, but we know that in this game it is a win-win situation,” Villers summed up.
Faced with difficult concessions, Macron is expected to negotiate some exemptions and adjustments, but it is not yet clear whether the U.S. will give in to French demands.
