US trade moves sour the transatlantic relationship

Plenty of pomp and more than a little symbolism will attend Emmanuel Macron’s trip to Washington this week for the first state visit to be hosted by Joe Biden as US president. It will be a chance to salute the unexpected unity the US and EU partners have achieved this year over Russia’s war on Ukraine. Yet the French leader will arrive with a shopping list of concerns, shared across the EU, over US trade measures including green subsidies and semiconductor export curbs to China. Unless these can be resolved — and a more co-operative economic partnership forged — the hard-won solidarity over Ukraine could suffer.

America’s passing of its $369bn climate bill, misleadingly called the Inflation Reduction Act, in August was in many ways a welcome moment for European allies. Here was the world’s biggest carbon emitter not only embracing the green transition but pledging to subsidise it on a grand scale. But EU officials fret that rules on subsidies for green technologies, including electric vehicles, contain discriminatory requirements on domestic content. These, they say, may unfairly induce EU companies to relocate to the US, and breach world trade rules. Officials are unhappy, too, about the potential spillover impact on EU firms of US export controls aimed at preventing China from acquiring cutting-edge semiconductor technologies.

Seen from across the Atlantic, the US moves smack of protectionist impulses that run counter to US treasury secretary Janet Yellen’s call for “friendshoring” of supply chains to trusted partners. They are happening, moreover, just as the EU finds itself at a hefty competitive disadvantage thanks to Vladimir Putin’s squeeze on energy supplies. With fuel prices much lower in the US, politicians fear EU and international businesses may shift operations and investments; BASF, the German chemicals group, said last month it would have to downsize “permanently” in Europe, after opening a new plant in China. The French president has accused US energy producers of enjoying “superprofits” as they increased sales to Europe.

The EU has to recognise the political constraints faced by Biden and the Democratic party, from the need to keep US labour unions on board with the green transition to the struggle to get their legislative agenda through Congress with a wafer-thin Senate majority. It should show understanding, too, for the US preoccupation with preventing China from acquiring advanced military technologies — especially after Germany, Italy and others mistakenly allowed themselves to become economically over-reliant on Putin’s Russia. But the US, as leader of the western alliance, also has to find solutions that prevent trade disputes from souring the transatlantic relationship.

Ideally, the US should grant the EU’s request and offer it the same preferential terms on electric vehicles as are extended to Canada and Mexico. Given the impracticality of taking the legislation back to Congress, however, the White House should at least attempt to use implementing rules to reduce its discriminatory effects. There is scope, too, to clarify and soften the effect of semiconductor export controls — not least because, if the US is serious about creating its own chip supply chains, it will need some European technologies.

There are echoes of the 1950s in America’s efforts to assemble a coalition of democracies for a new cold war, where it confronts not just a belligerent Russia but an ever more assertive China. Today, as then, those efforts should involve close co-ordination between allied economies, but trade quarrels constitute a corrosive distraction. Macron’s visit to Biden cannot hope to solve these issues. But if it contributes to greater understanding on both sides of just what is at stake, it will have served an important purpose.

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