Partner or opponent? How the EU and the USA could converge on free trade

Washington Robert Habeck arrived as a damage limiter. For two days, the Federal Economics Minister in Washington is currently trying to defuse the so-called “Inflation Reduction Act” (IRA). The US subsidy program worth billions has thrown the EU into turmoil. Europeans fear that their industries will migrate. Large parts of the funding instruments of the IRA are linked to the fact that the products come from the United States.

The dilemma should not have existed for the EU: Most protectionist regulations do not apply to countries with which the US has concluded a trade agreement. The EU could have been part of it, but the transatlantic agreement TTIP failed in 2017. Europeans and Americans have been speaking different languages ​​on trade policy for years.

But now there are again overtures from the old continent, in defiance of the IRA. The geopolitical turning point has at least put speculation about an EU-US trade agreement back on the agenda. And the ideas could become even more concrete in the case of a customs agreement. “Europe and the USA have moved closer together in the last year,” said Green Party politician Habeck.

In Washington, the Vice Chancellor will not only talk about what divides the EU and the USA, but also what potentially unites them. However, it is questionable whether the Americans will show themselves willing to talk.

Habeck recalled that official negotiations in trade policy are always in the hands of the EU Commission: “That is clearly the case and should not be questioned.” But one thing is clear: if Europe wants to make progress in trade policy, the path must first be followed go via Berlin. There were many reasons why TTIP failed, protests with thousands of supporters in Germany being one of the main reasons. And Habeck’s Greens were an important part of the protest movement.

Lindner and Scholz want a new edition of TTIP

Times have now changed. The Russian attack on Ukraine and concerns about China’s decoupling should the People’s Republic attack the island state of Taiwan have turned Habeck into a traveling salesman. For months he has been on a global mission to open up new markets and deepen existing partnerships. The US economy is also one of them.

>> Read here: Habeck wants to defend Europe’s industry with Le Maire in Washington

The traffic light coalition’s trade agenda, which was decided in the fall, contains its own capital for a “new attempt at a common economic area for free trade and fair trade”. Federal Finance Minister Christian Lindner (FDP) called for a restart for a trade agreement with the USA months ago. Most recently, Chancellor Olaf Scholz (SPD) did the same.

A comprehensive trade agreement with the USA will not be possible with the Greens, the TTIP trauma weighs too heavily for that. “The big trade agreements are always all-encompassing, and that’s not being discussed at all at the moment,” Habeck said on Monday in Washington. The US chapter only found its way into the trade agenda at the urging of the FDP.

But the Greens can ignore neither the unified agenda nor the geopolitical turning point. Habeck explained that he could well imagine an agreement on common standards with the USA. According to him, this should possibly allow EU products to be approved in the USA and vice versa without further testing. “Now that doesn’t seem like rocket science to me either.”

Steel from Salzgitter AG in Lower Saxony

Under former US President Donald Trump, the United States imposed high tariffs on aluminum and steel imports.

(Photo: dpa)

Even before his trip, the Economics Minister had brought another option into play that should be at least as palatable to the economy. Instead of a comprehensive treaty like TTIP, a variant stripped down to the essentials could become an issue: an industrial tariff agreement.

With this proposal, Habeck found a sympathetic ear among the party left. Katharina Dröge, once one of the heads of the anti-TTIP movement and now leader of the Greens parliamentary group in the Bundestag, recently told the Handelsblatt: “First and foremost, I think it makes sense to start talks on an industrial tariff agreement.” and Technology Council (TTC), Europeans and Americans exchange views on customs matters.

Mutual tariffs on cars in focus

There is certainly bargaining chip with tariffs. US President Joe Biden has put an end to his predecessor’s trade war. During his tenure, Donald Trump imposed punitive tariffs on steel and aluminum imports, while Brussels responded with counter-tariffs on jeans, motorcycles and other US products.

Since October 2021, Europeans have been able to import steel and aluminum duty-free again, but only a certain amount per year. Anything beyond that is subject to customs duty.

And that compromise expires in October 2023. The US government recently proposed that steel and aluminum should only be subject to graduated tariffs thereafter. For this, Washington demanded to be exempted from the planned EU carbon border adjustment mechanism (“CBAM”).

According to government circles, it is inconceivable for the EU to exclude its largest trading partner from the instrument. After all, the aim is to compensate for the disadvantage caused by CO2 pricing in the EU. In the USA there are some CO2 prices, but only very fragmented and not nearly as effective as in Europe.

Further tariffs are only suspended. In the dispute over subsidies for aircraft manufacturers Airbus and Boeing, Trump had imposed comprehensive tariffs, and the EU followed suit. Biden stopped that, but only for five years. Should Trump return to power in the next US presidential election in 2024, a new trade war would ensue.

>> Read here: Comment: The EU must not stand still in the subsidy race with the USA

“A comprehensive industrial tariff agreement would therefore mean a significant boost for the economic integration of the two economic areas and would also send a strong geopolitical signal,” says Lisandra Flach, head of foreign trade at the Ifo Institute.

The Americans might be interested in the automotive industry. For an electric car from the United States, there is an import duty of ten percent in the EU. For an EU electric car, on the other hand, an import duty of two percent is levied in the USA.

Biden relies on protectionism

The example of cars, of all things, shows the hurdles of such an agreement. Germany and France have little interest in their important auto industries getting additional foreign competition.

And although the President’s name is no longer Trump, hardly any movement in trade policy can be expected from the USA. Protectionism is also a central constant under Biden. When it comes to America’s economic interests, the Democrat relies on a consistent “Buy America” ​​course in many respects. The talks in the TTC on the subject of tariffs are also going very slowly, according to those involved.

Even if the Americans were interested, the EU would have to make concessions, such as opening up the European agricultural market. And France, among others, would by no means participate.

After all, Habeck has the opportunity to tackle both problematic fronts at once: On Tuesday he will meet US Secretary of Commerce Gina Raimondo in Washington together with his French counterpart Bruno Le Maire. However, the planned meeting with trade officer Katherine Tai is cancelled.

More: Dispute: how much industrial policy should there be? “You can’t meet the USA like that” – “I see it completely differently”

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