US-EU relationship sours over criticism of US protectionism

France and Germany are preparing to present an “aggressive response” to the American protectionism embodied in the Inflation Reduction Act.

This Monday (19), the economy ministers of both countries jointly announced that they seek to ensure Europe’s competitiveness in relation to the United States.

To defend these interests, the head of Finance and Economy of France, Bruno Le Maire, and his German counterpart, Robert Habeck, are planning a trip to the United States in January.

The legislation, dubbed the “Inflation Reduction Act” by the American press, was passed by the US Senate in August in a victory for Joe Biden. It was a campaign promise for the Democrat and touches on the areas of taxation, medicine and climate.

In the latter case, it foresees the injection of US$ 369 billion (R$ 1.95 trillion) in energy and climate programs and the cut of greenhouse gas emissions in the USA, until the end of the decade, to a level of 40% below the 2005 level. This is the largest US investment in the climate sector in history.

On the other hand, the law determines a series of protectionisms that have been irritating the European authorities in the last month. For example, tax deduction for the purchase of an electric car manufactured in the USA, but not for a European car, a measure that the EU considers contrary to the rules of international trade.

Biden wants to boost the electric vehicle sector to promote manufacturing jobs, the energy transition and technology competition with China. Another point of conflict is the incentive for the domestic production of computer chips and renewable energy parts.

The package finally offers massive subsidies for sustainable products made in the US. According to European leaders, the law unfairly harms non-US companies and would deal a heavy blow to their economies as Europe grapples with the more direct fallout from the Ukraine War.

The plan would pose a direct threat to European jobs, particularly in energy and auto. At a meeting with US lawmakers at the Library of Congress on Dec. 1, Macron called the law “super-aggressive” and openly criticized it.

“I don’t want to become a market for American products because I have exactly the same products as you. I have a middle class that needs to work and people that need to find work. Maybe you will solve your problems, but you will make mine worse,” Macron said. , on that visit to the USA.

Days later, the president of the European Commission, Ursula von der Leyen joined in and said that the EU would need to act to prevent investments from being attracted to the other side of the Atlantic due to the law.

“The Inflation Reduction Act should make us reflect on how we can improve our state aid structures and adapt them to a new global environment,” said von der Leyen in a speech in Bruges, Belgium. Some response to the US initiative is needed, she said.

So Commission officials have been trying to persuade the Biden administration to tweak the package so that EU companies can also qualify for American aid.

In response to the criticism, Biden said the new laws were never intended to exclude European allies and could, in fact, be tweaked. However, he did not detail what repairs could be made, and legislative options may be slim. There appears to be little will on Capitol Hill to reopen bills that have been highly debated and passed for months.

To make matters worse, since its approval in August, Republicans have regained control of the House. And they are unlikely to take measures requested by the Democratic president.

In their joint statement on Monday, the French and German ministers pledged new measures to support the EU’s green industries. “We will ensure that European industry has access to affordable, safe and sustainable electricity so that it can remain globally competitive,” wrote Le Maire and Habeck.