In a slick General Motors advert aired during last year’s Super Bowl, the actor and comedian Will Ferrell took patriotic umbrage at Norway’s ability to sell more electric vehicles per capita than the US. “Norway’s beating us at EVs!”, Ferrell lamented, before promoting GM’s latest battery technology to the watching millions.
Almost two years on, the angst is being felt on the other side of the Atlantic. Following on from President Joe Biden’s “Buy America” rules for infrastructure, his Inflation Reduction Act (IRA) will deliver, from January, almost $370bn worth of subsidies and tax breaks to US-based companies involved in the transition to a low-carbon economy. Around $50bn will come in the form of tax credits to persuade Americans to buy electric vehicles made in North America (Canada and Mexico were included in the deal after initially being left out).
Mr Biden has hailed this preferential treatment as a means to turbocharge America’s drive to net zero, create good clean energy jobs throughout the US, and give substance to his “made in the USA” rhetoric. The view from Paris, Berlin and Brussels is considerably less sanguine. As a growing number of companies seek to flee prohibitive European energy costs, there is a fear that the lure of huge American subsidies will accelerate an industrial exodus. The French president, Emmanuel Macron, suggested last month that if the US was following China down a protectionist path, Europe could not afford to be left behind, pining for a golden age of free trade. “We need a Buy European Act like the Americans,” said Mr Macron. “We need to reserve [our subsidies] for our European manufacturers.” In Germany, the mood appears to be similar. Robert Habeck, the economy minister, has stated the need for a strong European response to Mr Biden’s IRA, including a new emphasis on local procurement.
During a state visit this week to Washington, Mr Macron will seek to win concessions for European manufacturers, allowing them to compete on a more level playing field with US-based manufacturers. He will also raise European frustrations over the huge mark-up on the price of American gas being sold into the EU. But major changes to the flagship IRA are unlikely, and in any case the direction of travel is clear. Since taking office, Mr Biden’s principal trade focus has been on decoupling from and competing with China, as well as economic regeneration in the kinds of places that swung to Donald Trump in 2016. He is single-mindedly prioritising US interests in the emerging multipolar global economy. Washington’s most senior trade official, Katherine Tai, has urged the EU to stop complaining and introduce its own version of the US subsidy programme, and reduce its own China-dependency on the road to net zero.
As Ukrainians confront Russian attempts to freeze them into submission this winter, this transatlantic controversy must not be allowed to fracture western unity at a critical time. But the drift of Mr Biden’s policies should represent a wake-up call for European leaders. For better and for worse, the era in which free trade has been an unchallenged strategic goal in the west is over. The downsides of that consensus were exposed by populist revolts in post-industrial regions of the west, Covid-related supply-chain failures, national security concerns and the global energy crisis. The challenge for Europe is to maintain its commitment to openness and international trade, while at the same time developing a concept of European economic sovereignty that is adequate to changing times. The EU internal market commissioner, Thierry Breton, has described Mr Biden’s subsidies as an example of “determination and audacity” as the world transitions to clean energy. Europe must now decide whether to respond in kind.
