Germany and France join forces against Biden in subsidy battle – POLITICO

BERLIN/PARIS — Germany and France on Tuesday pushed for tougher industrial policies such as more state subsidies to European companies to counter the threat of U.S. reforms that risk sparking a transatlantic trade war.

The EU’s two main economies put aside their bad mood of the past few weeks to issue a joint statement pledging to “explore industrial policy options” to protect European industries from discriminatory trade measures from Washington and Beijing.

The statement, which comes after two days of high-level ministerial meetings in Paris – including French President Emmanuel Macron invited German Foreign Minister Annalena Baerbock and Economy Minister Robert Habeck to the Elysee Palace – signals an escalation European efforts to protect local manufacturing. the threat of unfair competition from the United States

Paris and Berlin are growing increasingly frustrated that US President Joe Biden’s administration is showing little interest in addressing their concerns about the Inflation Reduction Act, a $369 billion package of grants and tax breaks for stimulate American green businesses. From a European perspective, the US law is a protectionist measure as it encourages companies to move their investments out of Europe and encourages customers to “Buy American” when it comes to buying an electric vehicle.

Yet, with only six weeks left before the final provisions of the US law come into force on January 1 and negotiations for a peace agreement with Washington make little progress, the government in Berlin is increasingly convinced that he must ally with Paris and support a France is pushing for a more subsidy-based European industrial policy, as POLITICO first reported on Saturday.

The objective: to create better trading conditions to ensure that Europe remains an investment location for future crucial green technologies such as batteries, hydrogen or solar panels.

On Tuesday, this new industrial policy alliance between Berlin and Paris began to take shape in the form of a joint statement by Habeck and his French counterpart Bruno Le Maire.

“We call for an EU industrial policy that enables our businesses to thrive in global competition,” the statement said, adding that “we want to closely coordinate a European approach to challenges such as the US Reduction Act. of inflation”.

Although the statement avoids using the word “subsidies” directly, it speaks instead of the need “to explore the possibilities of industrial policy to prevent the negative effects of protectionist measures by third countries” and to “build a platform European transformation technologies”. The text also asks the European Commission to speed up the procedures for approving subsidies within the framework of so-called important projects of common European interest (PIIEC).

However, the text stresses that any EU state aid measure must comply with World Trade Organization rules, which means that it must not discriminate against foreign investors.

The Franco-German push, which follows recent tensions between the two countries, comes amid growing fears in Berlin that the US act, as well as high energy prices in Europe, could push growing numbers of companies to suspend investment or even close operations in order to move to the United States or China instead.

The Last of the Mohicans

“We have entered a new globalization,” said Le Maire. “China has been in this globalization for a very long time with massive state aid which is reserved exclusively for Chinese products, the fact is that the United States has just entered this new globalization before our eyes to develop its industrial capacity on American soil. Europe must not be the last of the Mohicans.”

Germany, meanwhile, remains concerned that any response to the US law will not trigger a trade war. German Chancellor Olaf Scholz warned on Tuesday of “one-upmanship in the area of ​​subsidies and protective tariffs, as some see coming as a result of the US Inflation Reduction Act.”

Speaking at an economic summit in Berlin, organized by the German newspaper Süddeutsche Zeitung, Scholz also suggested that a limited trade agreement between the EU and the United States could help defuse these tensions. “We should also be looking very closely at the idea of ​​an industrial tariff agreement with the United States,” Scholz said.

US officials have urged the EU to avoid engaging in trade with Washington and have suggested that Europe should instead copy the US subsidy model for its own industries.