EU should not start trade war with US over Inflation Reduction Act – expert

The EU should not start a trade war over new US legislation that prioritises American companies, an expert told Euronews.

US President Joe Biden has tried to style himself as a champion of American industrial ingenuity and as a protector of American interests. This approach is creating friction with his European allies.

The Inflation Reduction Act, passed by Congress earlier this year to move the country away from fossil fuels, subsidises green technologies made in the United States to the tune of $370 billion.

This includes electric cars, energy-intensive industries and renewable energy sources.

Brussels fears the new legislation shuts out European companies from the US market by giving American businesses an unfair advantage and that it also breaks international trade rules.

Jacob Kirkegaard, a senior fellow at the German Marshall Fund, told Euronews, however, that the EU should not bite off more than it can chew when it comes to the dispute. 

“The last thing we want to do right now, the dumbest thing we can do, is to start a trade war because we’re in a weak position. That’s simply a reality,” Kirkegaard said.

“I think there could be a case in a targeted, limited manner to allow a more lenient use of subsidies – public subsidies – towards the green transition to ensure that it happens as soon as possible and to ensure that European businesses are able to fully compete.”

A  joint EU-US task force has been negotiating possible exceptions for European companies for weeks now before the act enters into force in January. But so far, a deal remains elusive and experts are sceptical that a compromise will be found.

Valdis Dombrovskis, the European Commissioner for Trade, says that the EU is asking for “fairness”.

“We want and expect European companies and exports to be treated in the same way in the US, as American companies and exports are treated in Europe,” he said.

Any European countermeasures could be politically dangerous, given that the EU has become heavily dependent on the US when it comes to arming Ukraine and for supplies of liquefied natural gas to make up for lost deliveries from Russia.