The economic clash between Europe and the United States

A trade war is about to erupt between the European Union and the United States, due to the aggravation of the European-American trade dispute over Washington’s support for the domestic auto industry, amid efforts by France to escalate, as it leads a hard line against Washington accusing it of exploiting the Ukrainian war in its favor and waving a European complaint to the World Trade Organization and imposing trade restrictions.

France’s loudest voice in this war appears to be making America so angry that the US Politico newspaper has said that Paris is playing the role of a bad cop in the EU-US trade row.

In the middle of last month, President Emmanuel Macron accused Washington of protectionism and threatened to bolster the European Union’s trade defenses, Monday, French Finance Minister Bruno Le Maire threatened to file a European complaint against the United States over the European-American trade row that escalated due to the new US inflation reduction law, which Paris says poses a major threat to European companies.

Although the Ukrainian war appears to have united the West, under the leadership of the US, against its opponents such as Russia and even China, but the differences have resurfaced, because the European Union is angry that the United States is pumping subsidies into the domestic electric car industry, and Europe is now threatening to build its own protection walls.

The French president called on the European Union to support consumers and companies that buy electric cars produced in the European Union, rather than those that come from outside the bloc, as the United States would do.

Japan has joined the European Union in calling planned US assistance to domestic electric car manufacturers’ discriminatory and demanding equal treatment for its automakers, according to a report by the Taipei Times.

There is a belief in Europe led by Paris and also found by some other American allies such as Japan and Korea that Washington is exploiting the Russian war against Ukraine and the Western trade war against China to its advantage, and at the expense of its allies, which at the same time invites them to sacrifice their economic interests to tighten the noose around Moscow and Beijing.

The trade policies enacted by the Biden administration to boost domestic manufacturing and stifle technology trade with China appear to be driving a wedge between Washington and its most important ally, the European Union.

The French threats came as a reaction against the US inflation-reduction law.

The Politico newspaper considered that “Macron is playing the role of a bad cop, compared to the European Commission, which seems less severe in its position on Washington, leaving it some political space to make adjustments to its trade policy”.

But although France is the loudest, but its position reflects the concern of the European Union as a whole about the law to reduce inflation, enacted by Washington recently, which motivates American consumers to “buy American-made cars that are environmentally friendly, and the European Union argues that the law’s requirement that the car contain a battery with a certain percentage of Local content discriminates against the European Union and other trading partners.

French Finance Minister Bruno Le Maire said on Monday that the new US Inflation Reduction Act (IRA) posed a major threat to European companies, and that the EU should stand firmly against the law, which he described as unacceptable.

European industries fear that the bill, which grants a tax credit for every eligible component produced in a US plant, will withdraw potential investments from the continent, especially the part related to granting tax credits to American-made electric vehicles, which grants a tax exemption of 30% of the cost of new plants or Updated that builds renewable energy components.

In fact, not only is the EU-US trade dispute over the TAPA, it has turned into a multinational feud over the US TAPA that has been passed, with the European Union, South Korea, Japan and other trading partners of the United States seeing aid as The law is unfair.

Speaking later on BFM TV, Le Maire said he was struggling in investment negotiations with a foreign company in the electric car sector, as the United States was willing to provide four times the amount of French support.

In total, France estimates there are around $10 billion in investments and 10,000 jobs at stake.

“There is a risk of a major shock to French and European industry,” Le Maire said.

The European Union’s commissioner for internal markets, Thierry Breton, said the United States and the European Commission had already set up a working group last month to try to resolve their differences.

In comments submitted to the US Treasury, the European Union argued that policies that stimulate US industrialization contain clearly discriminatory requirements in favor of US industry, and considered it a violation of World Trade Organization rules.

European comments are demanding the abandonment of many measures in the new law, which the bloc argues would threaten investment in the European Union and cooperation to tackle climate change.

“If the law is implemented in its current form, it’s not only risks causing economic damage to both the United States and its closest trading partners, leading to inefficiencies and market distortions, but could also lead to a harmful global race to support technologies,” the European Commission wrote in the comments, and the main inputs for the green transition.

Macron told the French daily Les Equuses that Americans are buying American products and following a very aggressive strategy with the government helping American industry, and the Chinese are closing their markets.

The European Union cannot be the only region committed to free trade, as there is no European preference for European products.

The French finance minister said the “consistent and proportionate” options that Europe might make could include stricter environmental rules, measures to ensure preference for European production, or accelerating reciprocity rules.

When asked if Europe could file a complaint with the WTO, he said that Europe should use all available options.

He added: We must respond quickly… I call for a united, strong and coordinated response from the European Union against our American allies.

He continued, “Only a hard line will allow us to get results”.

The European Commission hopes to persuade Washington to find a diplomatic compromise with European automakers and suppliers.

If not, that leaves the EU with no choice but to challenge Washington at the World Trade Organization, EU officials and diplomats told Politico – even if a new transatlantic trade war is the last thing both sides want to lose their time and money in it.

“Either the EU-US trade dispute between the two sides will be resolved, or we hope it will be resolved, which is why we have a working group to discuss this, or we will go to the World Trade Organization and consider retaliatory measures,” Britton said.

“France won’t be left alone in a possible trade war over electric cars,” according to Elvir Fabri, a trade policy expert at the Jacques Delors Institute in Paris, where she claims that these tensions will bring Paris and Berlin closer, given that the German auto industry is also particularly affected by the US measures, and represents German car exports make up a large part of European exports to the United States.

But Berlin may be more careful in angering Washington, because while France exports almost no cars to the United States, the American market is one of the most important markets for the German car industry, which is the locomotive of the German economy, and in contrast, there are few American car exports to Germany or All of Europe, excluding Tesla’s escalating exports.

The comments come after months of mounting European discontent not only over US tax breaks, but also the Biden administration’s escalation of its technology war against China, with the United States enacting strict new chip rules last month preventing American companies from shipping chip-making equipment to Chinese companies, to cut the road to Beijing’s attempts to develop an advanced semiconductor industry that its military can use.

US officials have been insisting that all of their allies around the world should soon do the same with chip makers – a key step to ensuring that Chinese companies cannot acquire chip-making equipment from non-US companies.

Another US Commerce Secretary Gina Raimondo said last Thursday that the Dutch and Japanese – two countries with advanced chip makers – would soon follow Washington’s lead.

But the US and EU officials are unlikely to reach an agreement to cooperate on technology rules toward China at their next meeting – the Trade and Technology Council next month – according to EU officials who spoke to Politico last week.

US officials have already raised the idea of ​​discussing coordination on chip industry exports to China, but Europeans are divided on the issue.

Germany, whose export-oriented economy depends on trade with Beijing, and eastern European countries led by Hungary, want to maintain more positive relations with China.

Discussions about semiconductors at the upcoming Trade and Technology Council meeting are expected to focus only on how Washington and the European Union can spend tens of billions of dollars in support of the microchip industry, after both sides recently announced plans to raise technology manufacturing rates locally or in regions closer to the two blocs, amid Western fears that reliance on the Taiwanese chip industry poses a strategic risk if the island comes under Chinese invasion.

Even if Brussels can’t coordinate a unified policy among the EU’s 27 member states, the US can cut a deal with the Dutch national government itself.

The Netherlands is one of the leading European countries with advanced semiconductor companies, and Amsterdam could use its national security authority under EU rules that allow countries to act unilaterally in defense-related policies.

But Dutch representatives told Politico that they hadn’t yet received a direct request for restrictions on exports of chip-making equipment to China.

Tyson Parker, a former US State Department official who is now head of the technology and foreign policy program at the German Council on Foreign Relations, said it would take time to coordinate restrictions on trade with China.

But the “buy American” approach isn’t the only point of contention.

The fact that Europe is increasingly dependent on gas imports from the United States has taken European discontent to the next level.

There are good reasons for Europeans to be concerned about their trade balances with the United States, as the war caused a massive shock to the terms of trade between Europe and America, as rising energy costs pushed the European Union to record a huge trade deficit at the bloc level of 65 billion euros in August 2022, from just 7 billion euros the previous year.

Europe’s growing dependence on US liquefied natural gas as a replacement for lost Russian supplies has reignited the EU-US trade row.

France has always been the most outspoken country in the bloc when it comes to confronting Washington on a wide range of trade files, especially since it is not as big a source for America as Germany.

Paris, for example, played a major role in not concluding the Transatlantic Trade Agreement between the European Union and the United States, which was called “TTIP”.

France’s digital taxes have also angered major US tech companies and sparked a trade war with the administration of former President Donald Trump.

Most recently, during its rotating presidency of the Council of the European Union, Paris focused on trade defense measures, which would give Brussels the power to respond to unilateral trade actions, including from the United States.

Although import gas prices fell in September from an all-time high in August 2022, they are still 2.5 times higher than they were a year ago.

Taking into account the growing volume of purchase, France’s bill for LNG imports more than doubled in August, on an annual basis, according to one estimate.

Last week, French Economy and Finance Minister Bruno Le Maire warned that Russia’s war against Ukraine shouldn’t lead to “American economic hegemony and the weakening of Europe”.

Le Maire criticized the United States for selling liquefied natural gas to Europe “at four times the price at which it sells it to its own companies” and called on Brussels to take action for a “more balanced economic relationship” between the two continents.

The same concern is shared by some officials of the Commission, as well as among French industrialists, according to the Politico newspaper.

“It is hard to deny that the United States reaped some economic benefits from the war in Ukraine and suffered less of its economic consequences than Europe,” said Bernard Spitz, head of international and European affairs at business lobby Medive in France.