Europeans enraged by Joe Biden’s Inflation Reduction Act threaten a trade war
The European Union and the United States are getting dangerously close to a major transatlantic trade dispute, while the two western giants are looking to show unity in the face of challenges from Russia and China.
EU trade ministers on Friday insisted they would be forced to react if Washington honored all the terms of its anti-inflation bill, which is favorable through subsidies for local businesses and the EU said will unfairly discriminate against its firms wanting to compete for contracts .
“No one wants to get caught in a tit-for-tat or subsidy race. But what the US has done is really not in line with the principles of free trade and fair competition,” said Irish Trade Minister Leo Varadkar.
Although the allies have stood shoulder to shoulder and imposed tough sanctions on Russia since Ukraine’s February 24 invasion, they have failed to gloss over trade differences.
“What we demand is fairness. We want and expect European companies and exports to be treated in the US in the same way as American companies and exports in Europe,” said European Commission Vice-President Valdis Dombrovskis.
And beyond the European Commission, which negotiates trade issues on behalf of the 27 member states, the concerns are also broadly shared in the national capitals of the EU.
“All member states are concerned,” said Czech Trade Minister Jozef Sikela, who chaired the emergency meeting.
The Czech minister said the EU still hopes the disagreements can be resolved during a meeting of the task force set up by the US and EU on December 5, with the possibility of the bloc treating like Canada and Mexico and are exempt from the subsidy conditions.
Trade disputes have been a red line in transatlantic relations for decades, highlighted by battles over plane subsidies and steel exports affecting everything from hormone-treated beef to liquor exports.
The planned subsidies as part of the Inflation Reduction Act passed by the US Congress in August are particularly pleasing for the EU. For example, electric car buyers are eligible for a tax credit of up to $7,500 as long as the vehicle is powered by a battery built in North America using minerals mined or recycled on the continent.
The EU believes the measure is a potential transatlantic trade barrier that discriminates against foreign manufacturers. Actions the EU can take include filing complaints with the World Trade Organization, trade sanctions, or increasing subsidies for its own companies.
These considerations must be balanced against the need for cooperation on the geopolitical stage and the need to present a united front.
“We see that the parts from the East are actually trying to divide us,” said Estonian Trade Minister Kristjan Jarvan. “And, of course, cost-effectiveness plays a major role.”
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