The United States and Europe are discussing green subsidies to avoid a trade war (2023)

This content was published on April 3, 2023 - 04:00 Protocol

(Bloomberg Opinion) - Sitting in the Oval Office last month, European Commission President Ursula von der Leyen spoke on camera about the US Inflation Reduction Act. wake up green

Only with the press withdrawal did von der Leyen switch to a much tougher message, according to people familiar with the meeting. Europe's leader warned President Joe Biden that the law's bias towards European companies was unacceptable and that anything but a pragmatic solution would become a major nuisance in transatlantic relations.

The US and EU are negotiating a limited deal on critical minerals that could ease simmering tensions, but Washington's protectionist agenda still raises concerns in Brussels, where the US needs help to pressure China. Meanwhile, the Biden administration remains frustrated by what it sees as the EU's rigid adherence to a rules-based trading system that is no longer fit for purpose.

"Europe was really surprised that the Biden administration didn't go back to the pre-Trump days," said Kelly Ann Shaw, a partner at law firm Hogan Lovells, who served on the Trump administration's economics and business team. "You missed the memo that trade policy changed."

If the US and EU can close their trade gaps, they can protect the West's economic bulwark against the rise of China and Russian expansionism. But if talks fail, a new transatlantic trade war could undermine a pillar of the world economic order and permanently hamper global growth.

to build bridges

Since taking office, Biden has made a notable attempt to mend transatlantic ties that had gone sour during his predecessor's costly trade wars.

Biden and von der Leyen have forged a major truce for 2021 in a long-running dispute over illegal subsidies to Airbus SE and Boeing Co. other part

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Why Switzerland needs foreign workers Switzerland is an attractive place to work and the country needs skilled workers. But a work permit can be difficult to obtain.

The peace deal has created a fundamental level of trust between US Trade Representative Katherine Tai and her European counterpart, EU Trade Commissioner Valdis Dombrovskis.

The truce also provided a crucial basis for dealing with successive shocks that revealed a dangerous overconfidence in authoritarian nations: China's draconian and Covid controls that temporarily isolated much of its economy from the world, followed by the US invasion of the Ukraine. .

war in Europe

(Video) 'Unfair': EU criticizes Washington over planned subsidies for US-made electric cars | DW Business

Vladimir Putin's war has forced Europe to quickly refocus its energy policies to reduce Russia's economic clout, and Beijing's Covid rules have encouraged the United States to diversify its supply chains away from China.

In the beginning there was a common goal: the EU and the US worked together to impose tough economic sanctions to cripple Putin's war machine and developed a new energy alliance that made Europe the main buyer of US liquefied natural gas. .us

While leaders on both sides of the Atlantic hailed this new era of bonhomie after years of tariff warfare, their united front against Russia masked some deep differences over each other's approaches to trade.

Despite the friendlier tone, the Biden administration remains fixated on China and is far less interested in discussing ways to improve transatlantic trade cooperation, according to an EU official, who declined to be named due to the private nature of the talks.

Strengthening the Green Subsidy

Last year, political leaders in Brussels and Washington accepted generous government subsidies and tax credits to help slow climate change.

OpinionSwiss climate hearing will make history before Europe's top human rights court This content was published on March 27th. 202327 Mar.

This green industrial policy is being touted as a rare win-win scenario that can simultaneously boost manufacturing jobs in key components, neutralize China and reduce carbon emissions.

The proliferation of Western green subsidies is driving a broader shift in the global market for green goods, with governments projected to increase collective clean energy investment by 61% to $2.1 trillion by 2030, according to the International Energy Agency.

The urgency comes after China overtook Europe, Japan and the US as the leading producer of key climate change technologies and inputs such as solar panels, wind turbines and rare earth minerals.

The IRA aims to challenge China's green technology dominance and revolutionize America's clean energy market by providing $369 billion in tax credits and other incentives, although the final amount could be much larger.

How the US Green Deal Opened the Floodgates for Subsidies: QuickTake

The European Commission has responded to the US subsidy program with its own Zero Net Industry Act, which facilitates access to EU state aid for cleantech investments.

"Europeans realized that the magnitude of the benefits offered by the United States was such that it would become a huge incentive for European companies to come here and that it would harm the European manufacturing base," said Bill Reinsch, who acted as a senior official in the business. in the Clinton administration. "The way this is developing, we're both doing the same thing."

(Video) US, EU reach breakthrough in green subsidies impass | DW Business

another tone

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The US law angered many in Brussels, where EU officials feared massive US subsidies would unfairly distort the market for green goods, trigger an exodus of European clean energy investment and fuel a global run on subsidies.

Europe was also concerned that the provisions of the Critical Minerals Act would create harmful competition between the US and EU for scarce commodities outside of China, paradoxically forcing European companies to rely more than ever on Chinese inputs.

The EU briefly considered filing a case with the World Trade Organization over discriminatory provisions in US law, but ultimately decided that a public display of disunity would undermine the broader cause of cooperation against Russia.

"The main reason why the EU and the US are trying to reach a civil disagreement is the war in Ukraine," said former EU Trade Commissioner Cecilia Malmstrom. "Any apparent division or major disagreement will be exploited by Putin, and that's not a good idea."

let's make a deal

The proposed Critical Minerals Agreement aims to address these concerns by setting new transatlantic terms aimed at reducing dependence on China for raw materials. In return, the US will give EU companies better access to some Inflation Reduction Act subsidies and tax credits.

Ultimately, the US wants to form a club of like-minded countries that agree to reduce their dependence on China for commodities like lithium, cobalt, nickel and magnesium, which are key components of electric motors and batteries. The United States and Japan signed a similar agreement in March.

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Switzerland invited to join working group on Russian sanctions This content was published on April 7th. 20237 April

Reducing Europe's over-reliance on China for key raw materials is a clear priority for Brussels, as the EU currently gets around 98% of its rare earth supplies from China. "If we want to be independent, we urgently need to strengthen and diversify our supply chains with like-minded partners," von der Leyen told European lawmakers in March.

Chinas Charme-Offensive

The critical minerals deal may be a positive move, but the US Treasury's green subsidy guidelines won't address all of the EU's concerns.

(Video) Funding the green transition: A global subsidy race? | DW News

In Europe, too, there are fears that Donald Trump will once again take a more combative approach if he is re-elected. It's a sticking point that China wants to exploit as it works to create a deeper rift between the US and Europe.

Over the past decade, and particularly during the Trump administration, China has made significant strides in the European market and strengthened ties with Germany, France and the Netherlands.

Last year, Chinese President Xi Jinping received German Chancellor Olaf Scholz and a powerful delegation of German executives from BASF SE, Deutsche Bank AG and BioNTech SE to emphasize Beijing's close ties with Europe's largest economy.

A number of European heads of state, including Spain's Pedro Sánchez and France's Emmanuel Macron, who will be traveling with von der Leyen, are also visiting Beijing this year. EU foreign policy chief Josep Borrell also hopes to be able to travel to China soon.

Xi knows China's $6.8 trillion consumer market is a key destination for European exports of automobiles, medicines and machinery. German automakers Volkswagen AG, Mercedes-Benz AG and Bayerische Motoren Werke AG have built dozens of factories in China, and the three manufacturers now sell more vehicles in China than in any other market.

These companies are aware that there is a great risk of being at the mercy of sudden changes in Chinese rules and regulations one day.

economic compulsion

Europe has no plans to completely sever trade ties with China, but recognizes the need to downplay its dependencies and adopt a more assertive tone, especially after Beijing's efforts to punish Lithuania for its rapprochement with Taiwan.

In 2021, Lithuania opened a de facto Taiwanese mission in Vilnius, prompting a backlash from Beijing. China loosened diplomatic ties and restricted Lithuanian trade, leading to a 75% drop in Lithuanian exports to China.

But China's strategy backfired when Lithuania and other victims of Beijing's economic tactics turned to the EU and US for help. Last week von der Leyen unveiled a new tool to curb European foreign investment in critical sectors.

Read more: EU agrees new powers to respond to trade coercion

"We must ensure that our companies' capital, experience and expertise are not used to enhance the military and intelligence capabilities of those who are also systemic rivals," he said.

world steel business

The US is also hoping for EU support for new trade tools to punish Beijing's pro-market practices, such as B. its massive government subsidies to the steel and aluminum sectors.

(Video) EU leaders seek to stand up to US and avoid trade war

That's why the US and EU are negotiating a possible deal to "promote decarbonization by curbing anti-competitive and non-trade practices" by countries like China, the USTR's Tai told US lawmakers in March.

In December, Tai proposed creating a club of nations that would agree to increase tariffs on imports of foreign steel and aluminum made with high-carbon practices, a move said to be targeting China.

The US and EU hope to finalize the Global Deal on Sustainable Steel and Aluminum before a bilateral ceasefire expires in October. Otherwise, a trade war could be triggered and Trump-era tariffs on more than $10 billion worth of transatlantic exports, such as Harley-Davidson motorcycles and French wine, could be automatically restored as soon as January 1.

"If there is no movement for a meeting of minds between now and October, I think you will see more interest at the executive and congressional levels in moving forward with unilateral US action," said Todd Tucker, director of industrial policy and trade at the O .Roosevelt Institute, a liberal think tank based in New York. The United States is "absolutely" frustrated by allies' lack of concern about China's overcapacity, he said.

Befreiung CBAM

While the EU supports the general idea of ​​increasing transatlantic cooperation in the development of green technologies, Brussels has serious reservations about Biden's steel deal.

EU officials say the US proposal is controversial because it asks Brussels to exempt US steel and aluminum exports from Europe's carbon border tax regime, a massive regulatory initiative that will increase the cost of importing goods from countries with more flexible climate protection rules getting produced. The US envisages a bilateral carbon tax exemption that will replace the EU structure and could be open to other nations to join the deals in the future.

How the EU will charge for emissions outside its borders: QuickTake

US officials want the exclusion because they fear a carbon tax at EU borders will unfairly raise the export costs of US manufactured products, including steel, aluminum, cement and fertilizers.

But EU officials say the proposed deal will break WTO rules and preserve the United States' ability to levy tariffs later, leaving Europe at the whim of future governments.

The stakes are high to get this right. The trade relationship between the US and the EU is arguably the most influential democratic alliance in the world. Bilateral trade between America and Europe accounts for 42% of the world's gross domestic product and directly employs nearly 10 million workers in overseas offices on both sides of the Atlantic.

If the US and EU get on the same side, they could persuade other Group of Seven allies to embrace a new economic order that will force China to play by its rules. "A US ally with Europe that agrees with China is a much more serious offer for China," said Wendy Cutler, vice president of the Washington-based Asia Society.

--With the help of Jorge Valero and Gabrielle Coppola.

© 2023 Bloomberg-LP

(Video) EU-US Trade War. Frustrated EU to launch subsidy package to counter US $430 Billion Package #anirudh


How did Europe respond to the American tariffs on goods? ›

THE European response to the signing by President Hoover of the Hawley-Smoot Tariff Act was disapproval--immediate, undisguised and unanimous.

What trade war means? ›

A trade war occurs when one country retaliates against another by raising import tariffs or placing other restrictions on the other country's imports. Trade wars are a side effect of protectionist policies and are controversial.

What is the primary purpose of the European Union to create a common currency? ›

1 The euro was created to promote growth, stability, and economic integration in Europe. Originally, the euro was an overarching currency used for exchange between countries within the union. People within each nation continued to use their own currencies.

Has the US increased tariffs on European goods? ›

The WTO ruling authorizes the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, tariffs of 10 percent were to be applied to aircrafts and 25 percent on agricultural and other products (our estimate uses the average of the two rates).

Does Europe impose tariffs on US goods? ›

The European Union had imposed tariffs on about $4 billion of American products, while the United States levied tariffs on $7.5 billion of European goods. The two governments are also trying to resolve a fight over the steel and aluminum tariffs that Mr. Trump imposed in 2018.

Who benefits from a trade war? ›

It protects the domestic manufacturers from unfair competition. It increases the demand for domestic goods. It improves trade deficits.

How is the trade war affecting the US? ›

Overall the trade war has reduced US goods imports from China (figure 1). [1] Imports declined immediately after tariffs were imposed, falling further beginning in March 2020 as global trade collapsed in the wake of the COVID-19 pandemic, and have since recovered only slowly.

Why trade war is bad for the US? ›

A trade war, initiated by the United States, would do serious damage to the global economy as protectionist actions escalate. Countries imposing tariffs and countries subject to tariffs would experience losses in economic welfare, while countries on the sidelines would experience collateral damage.

What is the most common reason why countries create trade agreements? ›

FTAs are treaties between two or more countries designed to reduce or eliminate certain barriers to trade and investment, and to facilitate stronger trade and commercial ties between participating countries.

Why would some EU countries want to keep their own currency? ›

The 8 countries choose to use their own currency as a way to maintain financial independence on certain key issues. Those issues include setting monetary policy, dealing with issues specific to each country, handling national debt, modulating inflation, and choosing to devalue the currency in certain circumstances.

What is the role of the European Union in international trade? ›

The EU is responsible for the trade policy of the member countries and negotiates agreements for them. Speaking as one voice, the EU carries more weight in international trade negotiations than each individual member would. The EU actively engages with countries or regional groupings to negotiate trade agreements.

How much trade does the US do with Europe? ›

In 2021, the U.S. exports to European Union totaled $271.6 billion, a 17.5% ($40.4 billion) increase from 2020; the U.S. imports from European Union totaled $491.3 billion, a 18.2% ($75.8 billion) increase from 2020; the trade deficit was $219.6 billion, a 19.2% ($35.4 billion) increase.

Which European country does the US trade with the most? ›

U.S. exports to the EU 27 account for 16.3 percent of overall U.S. exports in 2019. The top five U.S. export markets to the EU 27 in 2019 were: Germany ($60.1 billion), Netherlands ($51.1 billion), France ($37.7 billion), Belgium ($34.7 billion), and Italy (23.8 billion).

Which country has the highest trade tariffs? ›

List of countries by tariff rate
RankCountryTariff rate, applied, weighted mean, all products (%)
1Palau34.63 %
2Solomon Islands30.28 %
3Bermuda27.59 %
4Saint Kitts and Nevis21.06 %
114 more rows

Does the US have free-trade with Europe? ›

Despite close ties, the United States does not have a free-trade agreement with the European Union, Japan or the United Kingdom. The passage of the law has prompted harsh criticism from allies, who say companies in their countries will be penalized.

How do tariffs hurt international trade? ›

Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result.

Why did the US charge a tariff on European manufactured goods? ›

The tariff sought to protect northern and western agricultural products from competition with foreign imports; however, the resulting tax on foreign goods would raise the cost of living in the South and would cut into the profits of New England's industrialists.

Are tariffs good or bad? ›

Tariffs increase the selling price of imported products in the domestic market. That makes consumers have to pay higher prices for imported products. Raises deadweight loss. Tariffs create inefficiencies on the consumption and production side.

Is USA winning the trade war? ›

After the trade war escalated through 2019, in January 2020 the two sides reached a tense phase one agreement; it expired in December 2021 with China failing by a wide margin to reach its targets for U.S. imports to China. By the end of the Trump presidency, the trade war was widely characterized as a failure.

Who suffers the most during a trade war? ›

US manufacturing exports suffered the most throughout 2018–21, falling substantially during the trade war and never fully recovering under the agreement. Overall trade flows have not improved this year, with US goods exports to China remaining only at their 2021 levels (figure 1).

Does the US benefit or impact from trade? ›

Trade keeps our economy open, dynamic, and competitive, and helps ensure that America continues to be the best place in the world to do business.

Did the trade war hurt the US economy? ›

The trade war caused economic pain on both sides and led to diversion of trade flows away from both China and the United States. As described by Heather Long at the Washington Post, “U.S. economic growth slowed, business investment froze, and companies didn't hire as many people.

Who is the US in a trade war with? ›

Five years ago, then president Donald Trump launched a tariff-fueled trade war with China designed to reduce the bilateral trade deficit.

Did the trade war help the economy? ›

In the long term, trade wars slow economic growth. They create more layoffs, not fewer, as foreign countries retaliate. The 12 million U.S. workers who owe their jobs to exports could get laid off. Over time, trade wars weaken the protected domestic industry.

Is international trade good or bad for the US? ›

International trade allows countries to expand their markets and access goods and services that otherwise may not have been available domestically. As a result of international trade, the market is more competitive. This ultimately results in more competitive pricing and brings a cheaper product home to the consumer.

Are trade wars successful? ›

Trade disputes do not produce winners in the long-term, although calculations are often presented to the contrary. A recent calculation by the Ifo-Institute found that Germany and other EU economies may benefit if the US implements further tariffs on Chinese imports.

What was the response to the tariff? ›

The tariff was so unpopular in the South that it generated threats of secession. John C. Calhoun, Andrew Jackson's vice president and a native of South Carolina, proposed the theory of nullification, which declared the tariff unconstitutional and therefore unenforceable.

What was one result of US tariffs on imported goods? ›

Tariffs hurt consumers because it increases the price of imported goods. Because an importer has to pay a tax in the form of tariffs on the goods that they are importing, they pass this increased cost onto consumers in the form of higher prices.

What happened as a result of high US tariffs on incoming goods? ›

Trade barriers such as tariffs increase the cost of consumer and producer goods and depress the economic benefits of competition, inhibiting economic growth.

What was the trade of goods between Europe and the Americas? ›

Christopher Columbus introduced horses, sugar plants, and disease to the New World, while facilitating the introduction of New World commodities like sugar, tobacco, chocolate, and potatoes to the Old World. The process by which commodities, people, and diseases crossed the Atlantic is known as the Columbian Exchange.

Who was against tariffs and why? ›

Many people in Southern states, especially South Carolina, opposed the tariff. They opposed protective tariffs on the grounds that hurt their state financially. Instead, they supported the free-trade of goods and threatened to nullify the Tariff of 1828 in a major challenge to national authority.

What impact did tariffs have on trade? ›

Tariffs are paid by domestic consumers and not the exporting country, but they have the effect of raising the relative prices of imported products. Other trade barriers include quotas, licenses, and standardization, all seeking to make foreign goods more expensive or available in a limited supply.

How did tariffs hurt Americans? ›

The tariffs forced American companies to accept lower profit margins, cut wages and jobs for U.S. workers, defer potential wage hikes or expansions, and raise prices for American consumers or companies.

Why did Trump impose tariffs? ›

The Trump tariffs are a series of United States tariffs imposed during the presidency of Donald Trump as part of his "America First" economic policy to reduce the United States trade deficit by shifting American trade policy from multilateral free trade agreements to bilateral trade deals.

What are the 3 main effects of tariffs? ›

They raise the price for consumers, lead to a decline in imports, and can lead to retaliation by other countries.

Who benefits from tariffs? ›

Tariffs mainly benefit the importing countries, as they are the ones setting the policy and receiving the money. The primary benefit is that tariffs produce revenue on goods and services brought into the country. Tariffs can also serve as an opening point for negotiations between two countries.

Do you have to pay import tax from USA? ›

The 20% is charged on the total value of the goods including the cost of packaging, transport and insurance. It also includes any duty that has been charged on the goods.

What is the current tariff of the United States? ›

The United States currently has a trade-weighted average import tariff rate of 2.0 percent on industrial goods. One-half of all industrial goods imports enter the United States duty free.

What was traded from Europe to the Americas in the triangular trade? ›

triangular trade Encyclopædia Britannica, Inc./Kenny Chmielewski The transatlantic slave trade was the second of three stages of the so-called triangular trade, in which arms, textiles, and wine were shipped from Europe to Africa, enslaved people from Africa to the Americas, and sugar, tobacco, and other products from ...

What are five products that transferred from the Americas to Europe? ›

The Columbian Exchange was more evenhanded when it came to crops. The Americas' farmers' gifts to other continents included staples such as corn (maize), potatoes, cassava, and sweet potatoes, together with secondary food crops such as tomatoes, peanuts, pumpkins, squashes, pineapples, and chili peppers.

What was the impact in both the Americas and in Europe of the exchange of products during the Columbian Exchange? ›

The Columbian Exchange caused population growth in Europe by bringing new crops from the Americas and started Europe's economic shift towards capitalism. Colonization disrupted ecosytems, bringing in new organisms like pigs, while completely eliminating others like beavers.


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