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French President to meet Biden to discuss looming trade war

The National logo The National 30/11/2022 Sunniva Rose

French President Emmanuel Macron landed in Washington on Tuesday evening for a four-day state visit aimed at highlighting the strength of US-France relations.

The first foreign leader to be hosted by incumbent US President Joe Biden, Mr Macron will be welcomed on Thursday at the White House with a 21-gun salute and military honours.

He and his wife Brigitte are scheduled to have both a private dinner with the Bidens and a state dinner at the White House with hundreds of guests.

Despite the warm reception, US-France relations are not in good shape. The US angered the European Union, and particularly France and Germany, when it voted in August an ambitious green subsidies bill called the Inflation Reduction Act (IRA).

The bill provides $370 billion towards reducing greenhouse gas emissions by 40 per cent by 2030 in the form of tax cuts and significant subsidies for US-manufactured electric vehicles, batteries and renewable energy projects.

Europe fears that the IRA will transfer investments from Europe, which is already suffering from sky-high energy prices due to the war in Ukraine, to the US. In a letter sent to the US Treasury on November 4, the European Commission made a number of demands for changes.

The EU’s trade commissioner Valdis Dombrovskis said during a press conference on Friday that “many of the green subsidies provided for in the act discriminate against EU automotive, renewable battery and energy intensive industries.”

Today, European countries are divided between an aggressive anti-IRA camp led by France, and other countries that are laying low in fear of triggering a trade war.

The EU's 27 member countries may attach varying priorities to the IRA's problematic elements, but they all share similar worries, EU Commission Trade spokeswoman Miriam Garcia Ferrer told The National.

"The reactions by member states show that the concerns with the Inflation Reduction Act are broadly shared within the EU," she said in an email.

Retaliatory trade measures between the US and Europe could both benefit China and weaken western support of Ukraine in its war with Russia. For many European countries, exports to the US are much larger than American imports.

French and US flags are set out for the state visit of French President Emmanuel Macron in Washington. AFP © Provided by The National French and US flags are set out for the state visit of French President Emmanuel Macron in Washington. AFP

“I should like to warn against conflating the IRA with our broader relationship with the US,” said Mr Dombrovskis last week. “The last thing we should be doing is creating unnecessary destructions or potential new disputes.”

Exemptions such as Canada and Mexico

For Europeans, the best-case scenario is that the US administration reviews the IRA to include exemptions to European industry.

Mr Macron is expected to explore this option with Mr Biden during his trip.

“We do not imagine that Congress, with a Republican majority, will fundamentally revise the IRA,” said an Elysee official.

“We can imagine that the US administration will give exemptions to a certain number of European industries, maybe following the same model applied to Mexico and Canada.”

Newly completed Tesla Model Y electric cars at the new Tesla Gigafactory electric car manufacturing plant in March near Gruenheide, Germany. Getty Images © Provided by The National Newly completed Tesla Model Y electric cars at the new Tesla Gigafactory electric car manufacturing plant in March near Gruenheide, Germany. Getty Images

Referring to the need for the US to address the negative effects the IRA has on the EU, Ms Garcia Ferrer said that "the US is best placed to identify the ways and means to reach these ends".

In parallel to Mr Macron's diplomatic efforts, a recently set up joint EU-US task force is working on finding a negotiated solution to Europe's grievances with the IRA.

The task force has so far met twice, and is expected to meet soon for a third time, French Trade Minister Olivier Brecht told reporters in Brussels on Friday.

Mr Dombrovskis and his colleague, EU Competition Commissioner Margrethe Vestager, will attend a Trade and Technology Council (TTC) that will take place on December 5 in Washington.

It will be an opportunity to take stock of progress but discussions are likely to continue after the TTC, said Ms Garcia Ferrer.

Yet there is little time left. The IRA is set to be enacted in January.

The Financial Times on Sunday reported that the US administration will draft rules to enact measures in the coming weeks but that little is expected to change.

Mr Dombrovskis recognised that discussions within the task force were “not easy.”

“What we are asking for is fairness. We want and expect European companies and exports to be treated in the same way as the US companies and exports are treated in Europe” he said.

WTO complaint

An EU diplomat told The National that it was “too early to give up on achieving results.”

“Nobody thought the Americans would change their mind quickly,” they added, “but we can’t give up on that option in advance.”

If the task force fails, there needs to be a discussion between the European Council and the European Commission to find how to best preserve European interests, said the diplomat.

French politicians in particular have floated many options, though without going into details. Mr Brecht said that both “coercive” and “supportive” measures were on the table, but did not elaborate.

One of the most aggressive suggestions has been to file a formal complaint at the WTO, an idea put forward by French Economy Minister Bruno Le Maire in an interview in early November.

Mr Le Maire claimed that in France, preliminary estimates show that €10 billion [$9.9 billion] in investments and thousands of jobs are at stake.

Germany has adopted a similar, though less aggressive, approach, arguing that protectionism is detrimental for everyone.

“We have to take care to ensure a level playing field that allows for the best ideas,” German Economy Minister Robert Habeck said last week, in an interview with four European newspapers.

“Green technologies in particular thrive best in fair competition, but protectionism paralyses innovation. The point is not so much losing our industrial heart, but that the next wave of technological innovation will not happen in Europe.”

More subsidies

Another response would be to respond to the IRA with European protectionism. Mr Macron has pushed the idea of a “Buy European Act”.

“It’s what the Americans are telling us: do your own IRA,” said the Elysee official, who claimed that European leaders including German Chancellor Scholz and Dutch Prime Minister Mark Rutte had expressed interest in the idea.

“This is not a debate that we will have with President Biden. It’s a debate that we must have among Europeans,” added the official.

Such discussions within the EU have only just started, they said, though they pointed to RePowerEU, the European Commission’s plan to end dependency on Russian fossil fuel imports which aims to boost investments in renewable energies.

“President [Macron] will tell President Biden, as he does in all his interventions, that essentially, we must have the means for our own sovereignty,” said the Elysee official.

Yet Europeans also know that unlike the US, they can ill afford to roll out $400 billion in subsidies. Mr Dombrovskis has cautioned against an “expensive and inefficient” subsidies race.

The Elysee official said that while “it’s not going to be necessarily easy” to find the necessary funds on an EU level, “Europeans must find a way.”

With the Christmas holiday just around the corner, Brussels has less than a month to figure out whether it wants to do that.

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