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US and EU reach stalemate on green subsidies

December 8, 2022

There was trans-Atlantic harmony on most issues at a meeting of the recently established Trade and Technology Council. However, a gaping rift exists when it comes to US state support for green cars and renewables.

Representatives of the EU and US speak to the media following the US-EU Trade and Technology Council
EU Commissioners Dombrovskis and Vestager with U.S. Secretary of State Blinken, Secretary of Commerce Raimondo and Trade Representative Tai (from left to right)Image: SAUL LOEB/AFP

Three European Union and three United States flags had been carefully strung together in the middle of the campus of the University of Maryland, marking a spirit of cross-Atlantic cooperation.

The campus near Washington DC was where representatives of the US and the European Union came together for the third meeting of the Trade and Technology Council (TTC). The forum aims to coordinate joint projects in trade, economics, and technology.

For the European Union, however, a dispute over the US  Inflation Reduction Act (IRA)  cast a shadow over the meeting in advance. Intended as a climate protection and social package, the IRA — an initiative of the Biden administration — provides a total of $369 billion US dollars for energy security and climate protection.

Among other things, it provides subsidies for electric cars, batteries, and renewable energy projects. However, this only applies to products made in the USA. The EU has accused the US of protectionism, claiming this will put European companies at a disadvantage. 

"What we're asking is that we are not subjected to the discriminatory provisions, in a sense that the European Companies and European exports to the US are not treated the same way as US companies and US exports in Europe", the EU Commissioner for Trade Valdis Dombrovskis said in an interview with DW before the TTC meeting. European Commission President Ursula von der Leyen also warned that the "new self-confident industrial policy of our competitors requires a structural response."

Is a trade war looming? 

Is there now a threat of a trade war  looming between the US and the European Union? Experts say no. "To speak of a trade war is exaggerated," Tyson Barker, head of the technology and foreign policy program at the German Council on Foreign Relations (DGAP), told DW. He said it remains to be seen what the individual provisions of the bill might bring to the US starting in just a few weeks in January. But in the United States, he said, there is a willingness to take a pragmatic approach. "There is some wiggle room and some flexibility in the language of the act that might allow the White House to make it more accessible for partners like Europe, Japan, South Korea," Barker said.  

Representatives of the EU and US sit at a negotiation table
The EU and US agreed on an early warning system for semiconductor shortagesImage: Saul Loeb/AP/picture alliance

Emily Benson from the Center for International and Strategic Studies (CSIS) also believes that a trade war is avoidable. "It's not clear that this is really a US policy that was ever intentionally aimed at attracting more European industry to move away from the continent and towards the United States," Benson said. In her opinion, it would be beneficial to reevaluate what this means in terms of building the green economy of the future. 

In fact, the Inflation Reduction Act (IRA) is considered the most important climate bill in US history. "It is the largest policy effort in the world to reduce the carbon footprint," Barker said. It could also be a win for Europe, he added. But it does not settle the conflict around electric vehicles. "We are leaving this meeting a little more optimistic than we were entering this meeting," Commission Vice President Valdis Dombrovskis said. 

What else was decided at the TTC? 

joint statement of the two trading partners included cooperation on data protection, improvement of technology, securing and improving semiconductor supply chains, and artificial intelligence.

Although there were no major breakthroughs since the last meeting in May, the EU and US were able to agree on an early warning system for semiconductor shortages. "The events of the past couple of years especially have emphasized to all of us the critical importance of having resilient supply chains," said US Secretary of State Antony Blinken. The goal of the cooperation, he said, is to have "more diverse and resilient supply chains that benefit industries on both sides of the Atlantic."

In addition, the EU and the US want to promote projects aimed at making infrastructures such as strategic overland and subsea cables more resilient. To this end, for example, more than a thousand public schools and children's homes in Jamaica are to be connected to the network. A similar project is being developed with the government in Kenya.

Common stance against Russia, less so on China

The Council reiterated its condemnation of Russia's "unlawful and unjustified war of aggression against Ukraine." It wants to keep helping Ukraine secure, maintain and rebuild its infrastructure, including telecommunications and the internet. 

Containers with a chinese flag painted over
The EU and the US want to counter Chinese influence in the technology industryImage: Christian Ohde/Chromorange/picture alliance

The TTC was partly established for joint strategiesto counter China in trade, competition, and technology development — without necessarily mentioning China by name. Often, the statements instead use code words such as "non-market economy."

However, the partners don't completely agree when it comes to Beijing. The  US, for example, is demanding that its allies go along with tighter export controls on China-bound technologies in order to constrain the development of China's semiconductor industry.

This would affect the Dutch company ASML, among others, but also some German companies. While the US perceives China primarily as a threat, the EU does not necessarily share the same view, Barker said. "The Commission cannot represent the 27 member states forcefully on the China issue because there is no consensus opinion," Barker said. 

What could cooperation look like in the future? 

Both sides of the Trade and Technology Council depend on each other for economic and technology issues and need each other's markets — and the TTC has set ambitious goals for its meeting in Sweden next year.

"The TTC was really conceived of, to chart new territory to leave behind those more traditional trade dispute topics," Benson explained. "And already, we see the TTC kind of falling prey to this old problem: complicated transatlantic trade relations in the last couple of decades" So, she says, this is a critical time to ensure that the TTC truly serves its purpose in the future.

Edited by Richard Connor

Silja Thoms stands and smiles as she looks into the camera.
Silja Thoms Senior Editor and Reporter