President Joe Biden and French President Emmanuel Macron talk prior to the first session of the G7 Summit on Friday, June 11, 2021, at the Carbis Bay Hotel and Estate in St. Ives, Cornwall, England. (Official White House Photo by Adam Schultz)
Remember the criticism Democrats heaped upon Donald Trump when he put tariffs on China? Now, Joe Biden and his fellow Democrats have slipped a number of sneaky trade policies into their recent legislation, including the poorly named Inflation Reduction Act, and the CHIPS and Science Act, and the media is barely making a peep. The passage of the laws with the trade policy language included has angered America’s European allies by putting their industries at a disadvantage. Edward Alden reports on Biden’s confrontational trade strategy for Foreign Policy, writing:
After a nearly two-year honeymoon since the inauguration of U.S. President Joe Biden, major rifts are opening up between Washington and its European allies over economic policy. Unless these rifts are handled deftly, the Biden administration’s vision of a new global economic order in which the United States works with allies and partners in Europe and Asia to contain Chinese and Russian ambitions could degenerate into a world of competing economic blocs.
After quietly rumbling for months, the spats burst into the open last week. Thierry Breton, the European Union’s internal market commissioner, announced he would pull out of this week’s meetings in Maryland of the U.S.-EU Trade and Technology Council, a key coordinating body for trans-Atlantic economic policy. He said the agenda “no longer gives sufficient space to issues of concern to many European industry ministers and businesses,” pointing to EU complaints over new U.S. subsidies for electric vehicles and clean energy that disadvantage European carmakers and other companies. Instead, he said, he would focus on “the urgent need to preserve the competitiveness of Europe’s industrial base.”
French President Emmanuel Macron, who was in Washington last week to attend the first White House state dinner held since the outbreak of the COVID-19 pandemic, said that U.S. subsidies “are very good for the U.S. economy, but they weren’t properly coordinated with European economies.” In advance of the visit, Bruno Le Maire, French minister of the economy and finance, accused the United States of pursuing Chinese-style industrial policy.
The subsidies at issue are part of two massive bills passed by the U.S. Congress earlier this year: the Inflation Reduction Act (IRA) and the CHIPS and Science Act. The former offers as much as $370 billion in subsidies for faster adoption of clean energy in the United States. It includes tax credits for U.S. buyers of electric vehicles—but only if the vehicles are assembled in North America and their components are made in the United States or other select “free-trade partners,” language that would hurt European car companies such as Volkswagen and BMW. The latter bill offers $52 billion in support for semiconductor companies to build new high-end fabrication plants in the United States. European leaders see both measures as unfairly subsidizing U.S. companies, aggravating the continent’s competitiveness challenges, and potentially forcing Europe into a costly subsidy arms race with the U.S. and China.
The Dutch government also pushed back publicly last week against U.S. pressure on its major producers of equipment for making chips, ASML and ASM International, to cut ties with China. The United States has launched a sweeping campaign to block sales of high-end semiconductors and chip-making equipment to China but has yet to persuade allies like Japan and the Netherlands to go along. Dutch Economics Minister Micky Adriaansens told the Financial Times that her country is “very positive” about relations with China and that Europe and the Netherlands “should have their own strategy” on controlling exports to China.
The growing divisions are partly a consequence of Russia’s war on Ukraine. While the United States and Europe have maintained a united front on sanctions against Russia and military aid for Ukraine, Europe has paid a much higher economic price for the conflict. Natural gas prices in most European countries have soared to as much as 10 times U.S. levels, putting European industry at a huge competitive disadvantage. While the United States has helped Europe fill the loss of Russian gas with liquefied natural gas (LNG) exports, it is being sold at the currently inflated market prices. France’s ambassador in Washington, Phillipe Étienne, told Foreign Policy: “We are grateful that the United States provides Europe with LNG, but there are issues about the price.”
Longer term, the disputes center on the conflicting goals of the Biden administration’s industrial policies. On the one hand, the United States wants to build a robust supply chain that reduces China’s role in supplying critical technologies and inputs for the industries of the future. That requires close cooperation with allies—what the administration has termed “friendshoring”—to prevent wasteful duplication and ensure greater resilience of supply. On the other hand, the administration is eager to see the revival of U.S.-based manufacturing, believing the loss of manufacturing—due in part to Chinese competition—weakened U.S. security and harmed the economy. Lost manufacturing jobs also eroded voter support for the Democrats in industrial swing states such as Michigan, Pennsylvania, and Wisconsin. Each of the new U.S. measures puts a thumb on the scale in favor of companies investing in the United States rather than Europe or other close partners.
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