EU to US: We already have war, don’t give us trade war too

The disappointment has come two years after the election of the president of the United States, Joe Biden, was supposed to restore transatlantic relations with the European Union. EU leaders talk openly about fighting, not just friendship.

They say conflict with Washington is the last thing they want, with a war on their doorstep in Ukraine and a common decision essential to stop Russia. But money is a threat to this unity.

“We already have war in Europe. The last thing we need is a trade war,” European Commission Vice President Margrethe Vestager told lawmakers on Wednesday.

They were debating US policies that many in the 27-nation bloc see as unfairly blocking a trusted and long-standing ally from the lucrative US market. At issue is the US Inflation Reduction Act, a $369 billion plan that favors US-made climate technology through subsidies and that the EU says will unfairly discriminate against its companies.

The transatlantic partners have long prided themselves on free trade without limits on excessive subsidies and protectionism, and the law felt in Brussels as Washington taking away the spirit of fair competition.

“IRA elements risk leveling the playing field and discriminating against European companies,” European Commission President Ursula von der Leyen wrote to EU leaders on the eve of their summit end of year

While the transatlantic relationship should cement its alliance as it faces Russia and an increasingly assertive China, there are many signs of a widening divide. It is all the more surprising because European leaders welcomed Biden’s arrival two years ago as a return to warm relations and mutual engagement after four years of fractured ties under Donald Trump.

Trade disputes have been a red line in transatlantic relations for decades, highlighted by fights over aircraft subsidies and steel exports and affecting everything from hormone-treated beef to exports of liquors

The subsidies planned under the Inflation Reduction Act passed by the US Congress in August are particularly serious for the EU. For example, buyers of electric cars are entitled to a tax credit of up to $7,500 as long as the vehicle runs on a battery built in North America from minerals mined or recycled on the continent.

Apart from addressing member state leaders, von der Leyen also went to the EU legislature on Wednesday to air her grievances.

“Three aspects are of particular concern. First, the logic of ‘buy American’ that underpins much of the IRA. Second, the tax breaks that can lead to discrimination. And third, the production subsidies that they can hurt European businesses. We need to address them,” he said.

There were signs of an impending grant race.

“We must give our answer: our European IRA,” von der Leyen said. “We need to make sure that investment aid and tax breaks reach the affected sectors more easily and faster.”

The head of the EU executive said she would propose initial plans next month.

Von der Leyen’s offices are negotiating on behalf of the 27 member nations on trade issues and at a European summit on Thursday, and she will be looking for all the support she can get.

Beyond jumping on the subsidy and protectionism bandwagon, possible actions the EU can take are complaints to the World Trade Organization or the imposition of trade sanctions.

Biden acknowledged “mistakes” in the legislation and said earlier this month alongside French President Emmanuel Macron that “there are tweaks we can make” to satisfy allies. But a Democratic lawmaker who was a key architect of the measure said he had no intention of reopening it.

But having been shoulder to shoulder for eight rounds of sanctions against Russia and the need for unity with Ukraine very clear, von der Leyen wanted to keep things in perspective.

“We never forget the big picture. A war wreaks havoc on borders,” he said. “This is not the time for a trade war with our closest partner and ally.”

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