The European Union and the United States heat up a trade war
France alone estimates that it will lose 8 billion euros because industries will prefer to move production from France to the United States so that their customers can benefit from this aid.
The union sacré against Russian aggression in Ukraine forged by the United States and the European Union could be broken in part by measures to deal with the economic consequences of the war, such as inflation. European Union trade ministers met Monday in Prague with their U.S. counterpart Katherine Tai, to whom they had prepared harsh criticism. European governments believe that the US economic plan to deal with the likely recession, a $370 billion (373 billion euro) package known as the US Inflation Reduction Act, is a compendium of protectionist measures that are contrary in part to World Trade Organization (WTO) rules and above all to good economic and trade relations between the giants on the two sides of the Atlantic.
The plan, focused on energy conversion against the climate crisis, subsidizes the purchase of domestically produced goods, such as electric cars. It also includes very cheap credits and subsidies to industries that invest in solar, wind, nuclear or carbon capture energy as long as they buy domestic products. France alone estimates that it will lose 8 billion euros because industries will prefer to move production from France to the United States so that their customers can benefit from these subsidies. Paris recalls that in France the purchase of electric cars is subsidized with 7,000 euros regardless of where the car was manufactured. The U.S. plan includes very similar subsidies ($7,500) but only if the car left a factory on U.S. territory.
The Europeans want these subsidies to go also to the purchase of products imported from Europe. Last week, the governments demanded that the European Commission sit down with the U.S. Administration to limit the impact on European industries and avoid plant relocations.
The unease had already been noted last week by the French Emmanuel Macron and the German Olaf Scholz after their meeting in Fontainebleau. They had already said that the European Union would have to adopt protectionist measures and subsidies for its companies if the United States did not back down on its plans. The ministers repeated the same message to Tai on Monday: either Washington eliminates the most controversial measures or Europe will retaliate with trade measures.
The European Commission understands the position of several European governments but for now is not inclined to impose protectionist measures against the United States. The EU’s top official, Latvia’s Valdis Dombrovskis, believes that a solution can still be found through dialogue, although in Prague Tai gave no indication that the Biden Administration is thinking of backing down. What Tai did agree to was to set up a joint working group with the European Commission to study the most controversial aspects of the US package.
Katherine Tai did not seem very impressed in Prague. To the protests of the European trade ministers, she replied that they could do the same and introduce similar subsidies and support, thus opening the door to a trade war in the process. In an interview with the Financial Times, Tai said she is “extremely proud of the investments the Biden Administration has made”.
The U.S. envoy called on the Europeans to increase aid to their producers, so as to make them compete on equal terms with the Americans and to reduce their dependence on the production of Chinese plants. The six-month presidency of the EU Council, held by the Czech Republic until Dec. 31, said the U.S. plan is “unacceptable” and that the Europeans want the same treatment as Canada and Mexico receive. But those two countries have a free trade agreement with the United States that the European Union does not. That TTIP that between all of them killed him and he died alone.