It’s been just a year since the US and EU celebrated their renewed friendship. At that time, both sides settled their dispute over special tariffs on steel and aluminum, a necessary step amid the pandemic-related supply chain crisis.
But just twelve months later, US President Joe Biden’s new approach to industrial policy is straining the relationship again. US protectionism is entrenching, fast, and that will dominate transatlantic relations going forward.
The European Union must face up to this reality. Because Biden’s successor in the White House, regardless of which party, will also rely on economic isolation. The EU must reorient itself: Initial attempts to conclude new strategic trade agreements are going in the right direction.
Putting yourself in the shoes of the US government, there is currently no reason to abandon protectionism. The USA wants to be the leader in key technologies and renewable energies and no longer want to be taken advantage of by China. Hence the billions in subsidies and investments that domestic manufacturers prefer. The leitmotif of becoming more independent from China is deeply rooted in both American parties.
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In order to isolate China, the US also accepts conflicts with its most important allies. It won’t be the last time this happens. The sooner the Europeans accept this, the better they can prepare for future solo attempts by the United States.
A turnaround is unlikely
The conflict over American electrical subsidies, which are due to come into force in five weeks, is just one symptom of this. The new rules in e-car sales and battery production favor American manufacturers and disadvantage Europeans, Japanese or Koreans. The Americans call their law the “Inflation Reduction Act”, the Europeans call it “protectionism”.
“Double standards”, “sabotage”, discrimination” is what European associations and top politicians say. The indignation is reminiscent of the Ice Age under Donald Trump, and the dispute over “Buy American” is leaving its mark. Fears of a subsidy race and even a transatlantic trade war are justified. There may be smaller, more symbolic concessions for close trading partners like the EU, but probably no more. Any relaxation of the planned “Made in America” rules would create new loopholes through which car manufacturers would still process minerals or components from China or Russia.
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Biden’s course is simply too successful. The President has accomplished what was long considered impossible. The wave of green investments is revitalizing what was once the US “rust belt” and transforming it into a “battery belt”. Until recently, green tech investments hardly played a role in the USA. They have tripled since Biden took office.
The manufacturing industry, which is well represented in politically important states, also benefits from this. America finally has a plan for the future that promises prosperity and sustainability at the same time: that is a Biden achievement that will remain.
Republicans condemn the “green fantasies” of the “radical left.” And, of course, fossil fuels continue to play a huge role in the US energy mix. But even a Republican president will rely on protectionist measures and key technologies “made in America” as long as they are lucrative.
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