At a glittering state dinner at the White House a few days ago, President Biden and Emmanuel Macron, president of France, raised crystal flutes to transatlantic friendship, toasting shared values and common cause.
European officials object to Biden’s green subsidies as protectionist
The U.S.-E.U. Trade and Technology Council was launched last year as a forum for the United States and the European Union to coordinate approaches to key global trade, economic and technology issues. A May meeting in Paris seemed to hold promise for progress, especially in dealing with China’s rise as a geostrategic rival.
But Europe’s frustration over subsidies for American-built electric vehicles and other green energy technologies is dampening such prospects. Already, a senior E.U. official, Thierry Breton, commissioner for the internal market, pulled out of the Monday meeting.
At a joint news conference with Macron on Thursday, before the state dinner, Biden acknowledged the hard feelings among allies. “I never intended to exclude folks who were cooperating with us,” he said, striking a mollifying note. “That was not the intention.”
He also expressed optimism that a path forward could be found through a U.S.-E.U. task force set up to address the issues. “We can work out some of the differences that exist,” Biden said. “I’m confident.”
Macron had earlier warned that U.S. choices threatened to “fragment the West.” Appearing alongside Biden, he said they had “an excellent discussion” on the legislation and had agreed “to resynchronize our approaches, our agendas,” because “we share the same vision” for more jobs and a secure supply chain.
“The circumstances mean that we have no alternative but to work together,” he said.
But the European side has been considering other options, too. Macron has floated the idea of a “Buy European Act,” a pitch that was greeted cautiously but is gaining some traction as E.U. anger grows.
In Brussels, the de facto E.U. capital, diplomats are assessing different points of leverage, including potentially using the Biden administration’s desire to coordinate on China strategy, to press their points. “When you want to talk China, you also need to talk IRA,” said one senior E.U. diplomat, who like others interviewed spoke on the condition of anonymity because of the sensitivity of the matter.
There has also been talk in Brussels of raising the issue at the World Trade Organization. While few have the appetite for a trade war, some feel such an extreme recourse may be necessary if the U.S. side presses ahead.
When Biden signed the IRA into law in August, he hailed it as the “most aggressive action ever — ever, ever, ever — in confronting the climate crisis and strengthening our economic — our energy security.”
The administration says it presents “significant opportunities for European firms,” as well as benefits for E.U. energy security, by accelerating the energy transition. “The bottom line,” said a National Security Council spokesman, John Kirby, is that clean energy is “a tide that raises all boats … There’s plenty of opportunity for everybody in that.”
But the more European officials and diplomats studied the legislation, the more it looked to them like an aggressive hit on the E.U.’s industrial base.
As Russia escalated its war in Ukraine this fall, some allies were wary of making too much noise about the electric-vehicle subsidies, lest Europe appear divided. But by October, the behind-the-scenes dispute had very much burst into public view.
The U.S. measures “discriminate against E.U. automotive, renewables, battery and energy-intensive industries,” the bloc’s trade commissioner, Valdis Dombrovskis, said last month. “We want and expect European companies and exports to be treated in the same way in the U.S. as American companies and exports are treated in Europe,” he said in a speech.
As far as the White House is concerned, the legislation passed by slim margins and there is little appetite for asking Congress to make changes. But, administration officials say, there may be room in the rulemaking process to accommodate allies’ concerns before the law takes effect on Jan. 1.
“We are committed to an IRA implementation approach that moves quickly, that gets the tough questions right, and that has appropriate guardrails,” said a senior administration official. “We are confident that we can create good-paying jobs and tackle the climate crisis — and not at each other’s expense.”
Administration officials say the E.U. should consider its own subsidies in coordination with Washington. “There is an important role for subsidies to help accelerate and generate positive” results, the senior official said. “We view the task force as a way … for us to make sure that their approach and our approach ends up complementing one another.”
Allies, still reeling from the tit-for-tat chaos of the Trump era, expressed some irritation with the way the dispute has been handled over the past months. They cited a lack of consultation and care, particularly in the context of Russia’s war in Ukraine, which has sent energy prices soaring across the continent and pushed the E.U. to the brink of recession.
The IRA’s electric-vehicle subsidies have also upset allies in Asia, in particular the South Koreans and the Japanese, which both build electric cars. They are “exchanging notes” with partners in Europe on the issue, said one Asian diplomat, and there is a “convergence of intent” to get the U.S. side to accommodate their concerns.
The backlash over Biden’s trade policy is playing to long-standing divisions within the E.U. on trade. Some countries that support a more free-market approach see the Inflation Reduction Act as a gift to countries such as France, giving Macron cover to push ahead with interventionist policies.
Without the United States to call out European protectionism, some smaller, liberal economies feel they have less leverage. “America is lowering the bar for protectionist interventions,” said an E.U. diplomat. The more the U.S. puts America first and unilaterally changes the rules of the game, the less willing Europe is going to be to follow.”
While the United States often accuses the Europeans of being discriminatory — for instance, by forbidding imports of beef that contains hormones — the IRA’s electric-vehicle subsidies are “blatantly protectionist,” said Frances G. Burwell, a fellow at the Atlantic Council think tank.
The turn of events is unfortunate, she added, noting that at the Paris meeting, electric vehicles were touted as a technology for which the E.U. and the United States could develop compatible regulations, particularly on charging infrastructure. “So,” she said, “granting subsidies for American-built EVs took the Europeans by surprise.”
But, Burwell said, she does not believe the contretemps will doom the transatlantic trade relationship. “We have always had very difficult trade and regulatory issues — always,” she said. And, she added: “It won’t erode our cooperation on export controls and sanctions against Russia for its invasion of Ukraine.”
Beijing, predictably, is seeking to exacerbate the divide between Europe and the United States. At a daily briefing on Friday, Zhao Lijian, a spokesman for China’s Foreign Ministry, responded to a question about Macron’s remarks in Washington by criticizing Washington’s treatment of Europe. “The U.S. legislation, designed to serve its own interests, shows no regard for other countries, not even its so-called allies and partners,” he said.
Monday’s meeting is unlikely to reach a resolution over the subsidy dispute, but it provides a forum for a high-level discussion of the issue, Burwell said. “It lays the groundwork for a potential solution in the next few months.”