The European Union mustn’t back down from defending its economic interests against US legislation which threatens to gut the bloc’s manufacturing base, European lawmakers have urged.
The Inflation Reduction Act, signed into law by US President Joe Biden in August, commits over $390 billion for energy security and climate change, including tax credits for electric vehicles, batteries and renewable energy projects made in the USA, other subsidies for manufacturers, plus tens of billions of dollars for upgrades to solar and nuclear power capacity, and home energy efficiency. It also includes $57 billion in subsidies for advanced manufacturing and "climate smart" farming projects.
But the legislation has sparked an uproar across the Atlantic, with observers seeing it as a maneuver designed to “suck investment out of Europe,” and French President Emmanuel Macron attacking it as a “super-aggressive” step which “will split the West” if changes are not made to account for European interests.
Markus Ferber, a member of the European Parliament and economic policy spokesman for the European People’s Party group, the legislature’s largest bloc, called for a hard line to show Washington that the EU is serious.
The European Commission must “put all the instruments of torture on the table” to signal that it is ready to activate defensive trade instruments,” Ferber told German media on Saturday.
“That would certainly be the nuclear option, and in the current situation it would be anything but desirable,” the lawmaker stressed. However, it would be justified, given President Biden’s protectionist course. “The American anti-inflation law threatens to make a difficult economic situation in Europe even worse,” Ferber said.
Bernd Lange, the head of the European Parliament’s Trade Committee, echoed his colleague’s concerns, saying that tinkering aside, the basic structure of the Inflation Reduction Act cannot be changed, and that the EU should file a complaint against the US in the World Trade Organization to demonstrate that Washington’s approach “is clearly not compatible with WTO regulations.”
As things stand, Lange warned, energy prices in Europe are 10 times higher than in the US, and measures must be taken to reduce prices.
French President Emmanuel Macron went to Washington this week to drive the EU’s concerns home with Biden, with the US president expressing openness to the possibility of “tweaking” the IRA legislation to account for European interests.
However, on Friday, White House spokeswoman Karine Jean-Pierre emphasized that the president doesn’t have “any plans to go back to Congress for legislative changes” to the law.
President Macron expressed hopes Friday that Brussels and Washington could resolve the spat over the IRA by “the first quarter of 2023,” and that the EU would be granted exemptions from the protectionist legislation similar to those granted to Canada and Mexico. However, as German media have pointed out, so far there have been no signs that such exemptions are forthcoming.
“Nobody wants a trade war in our present situation. We have one competitor – China. The strategic goal of the US, it seems to me, is not to weaken Europe but on the contrary to work in partnership with Europe,” French Finance Minister Bruno Le Maire told reporters on Friday.
However, behind the scenes, officials don’t seem certain what Washington’s true intentions are vis-a-vis the Europeans. “There’s a risk that imbalances will worsen as the EU pays higher energy prices and the US takes measures to boost investment in industry,” an anonymous Elysee Palace official told media.
Other observers have expressed the position that US maneuvers, whether through the IRA legislation or the restrictions on Russian energy that preceded it, are designed to weaken Europe as a competitor to Washington, and enable America to profit off of spiking energy costs by shipping oil and gas to Europe while cannibalizing the bloc’s industrial base.
Russian President Vladimir Putin warned back in May that Brussels’ restrictions on Russian energy deliveries would be “suicidal” for European industry, and would result in “economic activity…leaving Europe for other regions of the world.” In September, several weeks before the sabotage of the Nord Stream pipelines, Putin reiterated Moscow’s readiness to turn on the taps, and stressed that Washington was pressuring the Europeans to slap sanctions on Russian energy only so that they could “sell them gas for three times the price.”
Hundreds of European manufacturers, including major steel makers and chemical giants, car manufactures, pharmaceutical companies, and others are already in the process of shifting operations to the United States. Some European companies, including German chemical giant BASF, saw the crisis coming a mile away when the Ukraine crisis was only beginning, with company CEO Martin Brudermuller warning in late March that cutting off Russian gas “could lead to the worst crisis for the German economy since the end of World War II.” If rising tensions between Washington and Brussels are anything to go by, Brudermuller’s predictions seem to be coming to pass.