Washington It’s the little gestures that set the tone at a top-flight meeting. In the Oval Office of the White House, US President Joe Biden welcomed the President of the European Commission, Ursula von der Leyen, with a warm fire and warm words. Two years ago, he told her on the phone that times were changing, Biden recalled. “I hope I kept my word.”
Under Donald Trump, transatlantic relations were at a low point, and Biden promised a new start. In the meantime, the USA and the EU are “good friends” again, assured von der Leyen. “We are making Russia pay for its cruel war,” she emphasized, and the US had “helped the EU through the energy crisis” with liquid gas.
But despite all the demonstrative cohesion, the two partners have to avoid a major conflict. The American subsidy program for green technologies, the Inflation Reduction Act (IRA), has been testing the relationship for months. The USA is pumping 370 billion US dollars into the promotion of climate-friendly technologies, the subsidies are to run indefinitely.
The EU Commission sees the IRA as a serious threat to European industry. A significant proportion of European companies are already considering relocating activities from the EU to the USA. In addition, strict content requirements for batteries should exclude European manufacturers from US purchase incentives for electric cars.
Now there is a perspective for a rapprochement that could fundamentally change the global race for raw materials at the same time: Biden and von der Leyen agreed on Friday to talk about a new transatlantic raw materials partnership. “We will start negotiations immediately,” said a joint statement from the US and the EU. The goal is a new supply chain network for critical raw materials, minerals and rare earths, explained a high-ranking US government official – with the G7 states as the anchor point and in contrast to China.
In detail, the partnership provides for the following:
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“Trade Pact light”: The cooperation is “very limited” to critical minerals for electric cars and batteries, said the senior US government official. So far there is no contract, only a declaration of intent for negotiations. A traditional free trade agreement that, for example, reduces tariffs and has to be ratified is not under discussion. The negotiations should only last weeks instead of months or years.
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Door opener in the IRA: If the raw materials partnership is sealed, European battery manufacturers could still benefit from the US subsidies under the IRA regulations. For example, an EU-based company could help supply lithium, nickel or other materials for electric vehicles made in North America – and would benefit from the incentives in return.
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A question of security: So-called “friendshoring”, winning allies for critical raw materials, is a core of Biden’s security policy. The United States is holding similar talks with Japan and Great Britain. Natural resources play an increasingly important role in national security on both sides of the Atlantic. The pandemic and the Ukraine war have exposed how quickly commodity supply chains and energy supplies can be disrupted and abused.
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Network of Natural Resources: Deals with the EU, Japan and the UK would be the first step in creating a new G7 critical minerals ‘buyers’ club’ – because neither the US nor the EU has many natural resources. That is why medium-term partnerships with resource-rich countries in Africa, Asia and Latin America are the goal. Ukraine also has large reserves of critical minerals and rare earths. The agreement is intended to take into account “the highest standards” in working conditions and environmental protection. How exactly this should be checked is open.
The announcement is an attempt to move forward in the IRA dispute. “The saga surrounding the IRA has left its mark on transatlantic relations,” the Washington think tank Atlantic Council commented on the meeting. “The task now is to defuse the risk of a subsidy race and to coordinate better.”
In the run-up to the Commission President’s visit, hardly any details about her program leaked out because the planned agreement is diplomatically sensitive. It is believed in Brussels and Washington that the announcement will be closely followed in China, where President Xi Jinping has just secured a third term. After all, the commodity cooperation is a challenge to China’s dominance of the commodity market. According to the Atomic Energy Agency (IEA), China has more than 80 percent of the global refining capacity for rare earths – this is to change according to the will of the USA and the EU.
Ambitious goal, vague details
However, the United States has not committed itself to further concessions in the dispute over the IRA. “We expect and hope that Europe will follow suit with its own plans,” the US administration official said. Next week, the EU wants to announce details of a green industrial plan.
>> Read about this: Response to IRA: Von der Leyen wants to channel state money into wind, solar and nuclear
Many questions about the transatlantic raw material partnership are still open, and there is a risk of resistance to the plans in the USA. The powerful US mining associations have been warning for months that foreign automakers could still process minerals from China or Russia in a roundabout way.
Democratic Senate Treasury Committee chief Ron Wyden called on Biden to “get Congress and the Senate involved in trade policy.” And Democrat Joe Manchin, head of the Senate Energy Committee, blocked confirmation of two Biden candidates for government posts in a sign of protest against concessions in the IRA. He called for an “end to the political games” and a consistent implementation of the subsidies.
In addition, the question arises as to how realistic the self-imposed battery targets of the USA are. According to the IRA, 80 percent of the critical minerals in a battery should come from the USA or from US free trade partners by 2027. For perspective: Currently, 59 percent of American lithium imports come from Argentina, a country with which the United States has no such agreement.
The goals are only “achievable for some battery types,” writes Jennifer Dunn, professor of engineering, in the journal Nature Sustainability. In addition, the law ignores the “significant threat to environmental quality for air, water and soil quality” from raw material prospecting and battery production.
Above all is the China question
But in Washington, the planned partnership with the EU is not only seen as a pragmatic way to redirect supply chains. The G7 “buyers’ club,” the US official explained, is a “welcome sign” that the EU wants to emancipate itself from China. “Mutual concerns against China are at an all-time high,” he said.
>> Read also: Europe counters the subsidy policies of China and the USA
US intelligence chief Avril Haines this week described China as the “leading and most serious threat to US national security”. In early February, the launch of a Chinese surveillance balloon over US airspace triggered a diplomatic crisis. The US government is also warning of potential arms deliveries from China to Russia for the Ukraine war and is trying to win international support for sanctions against China, including the EU.
The federal government recently expressed the hope that this step could be avoided. Because such sanctions with European participation would be extremely delicate in view of the strong economic ties with China. So far, the US has not provided any evidence of arms cooperation between Beijing and Moscow.
The US and the EU are by far the largest donors to Ukraine, with US$113 billion and US$18 billion respectively. However, the flow of money from Washington could be in danger as early as the summer. Because every new aid package has to go through the US Congress, which has been divided since the midterm elections in November.
The Republicans dominate the House of Representatives by a few seats, some of whom are threatening a blockade. The topic is increasingly being discussed in the US presidential election campaign, with Trump threatening to end aid to Ukraine immediately if he moves into the White House for the Republicans again.
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