politics

‘It was all about the US’: Democrats unrepentant as allies fume over trade rules

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“We did it to help the United States of America,” the senator said. Joe Manchinwho agreed to back Biden’s climate legislation in August after the inclusion of domestic manufacturing incentives.

“It was about the United States of America,” the West Virginia Democrat added.

Tensions over the Inflation Reduction Act provisions show how far Democrats are willing to go to ensure American workers — not those in China, or even allies — reap the benefits green industries that will be huge engines of the global economy for decades to come. The dispute threatens to derail some of the United States’ strongest trade relationships at a time when the administration needs them to counter the economic toll of Russia’s war in Ukraine and China’s tech boom.

The compromise between Manchin and the Senate Majority Leader chuck schumer was needed to bring the landmark Inflation Reduction Act to Biden’s desk. Manchin – a resister during months of IRA talks between Democrats – clarified during the negotiations of the bill he would only back the package if it included tough rules benefiting US-made electric vehicles and other clean energy technologies, like solar and batteries.

Under the law, Germany and South Korea will see car exports from their industrial heavyweights, Volkswagen and Hyundai, stripped of a $7,500 consumption tax credit that is at the heart of efforts Americans to increase the production and sale of electric vehicles. By law, these benefits will now only go to vehicles built in North America with batteries and minerals sourced from the United States and from select partners.

“The longer the dispute with the IRA lasts, the more the US government will lose credit among its allies, making it more difficult for them to adhere to global common causes” like securing supply chains, a South American embassy official Korea, who was not allowed to speak openly about the sensitive diplomatic issue, told POLITICO.

“I would like to believe that this is a one-off incident rather than a shift towards deeper protectionism,” the official added. “But unless addressed, it could lead to the proliferation of harmful subsidies around the world.”

On the surface, Biden himself has been receptive to calls for cooperation from allies.

During a visit last week by French President Emmanuel Macron, who lambasted the law, Biden told reporters the two had discussed “practical steps to coordinate and align our approaches,” while Macron claimed leaders had “agreed to resynchronize our approaches, our agendas”. to invest in critical emerging industries.

“We take Europe’s concerns very seriously, and you heard the big boss say so himself last week,” said US Trade Representative Katherine Tai. said Thursday.

But Democratic lawmakers and even Biden’s economics team freely acknowledge that the law is meant to benefit American workers before their foreign counterparts.

“We make no apologies that his economic strategy and the economic elements of these bills are designed to first and foremost create economic opportunity for communities across America,” the National Economic Council said. . Director Brian Deese, calling Biden’s passage of industrial subsidies in the IRA and the CHIPS Act, which will bolster microchip manufacturing in the United States, “a marked departure from the economic philosophy that has governed for a great part of the last 40 years in this country”.

Ron Wyden, the Senate’s chief tax and commerce legislator, also defended the law this week. “There is nothing – and we have looked at it very carefully – in commercial law that says the United States of America cannot take action to create well-paying jobs in America when they prefer [action on] climate change,” the Oregon Democrat said.

But foreign governments say their industries could become collateral damage. At a time when Europe is facing exorbitant energy prices and a war on its border, US policies, they say, could siphon green investment out of the region and end up being counterproductive for Europe. global goal to combat climate change.

Over the past week, Macron and a conference of senior US and European officials have elevated new US tax credits as a major point of contention. For weeks, Europeans have argued that the decision to favor car factories in the United States discriminates against cars made in Europe and disregards their interest in accessing the American market.

EU officials now say they are optimistic Both sides can reach a resolution, but they want a solution in place before the law takes effect on Jan. 1. And while the bloc has not revealed how it could make the problem even worse, leaders have already started discussing the possibility of offering their own financial incentives.

“I think one war is enough,” European Commission Executive Vice-President Margrethe Vestager said this week, referring to Russia’s invasion of Ukraine. “The second point I would like to emphasize is that it is much faster to find a solution than to deepen the conflict. Conflict solves nothing.

The European Union is not the only one concerned. South Korea and Japan have also been vocal, if less public, criticisms of the law’s tax credits. The two countries are key partners in the administration’s ongoing negotiations over a new economic framework in the Indo-Pacific that aims, in part, to secure critical supply chains separate from China for microchips, batteries and other important technologies.

Meanwhile, Canada and Mexico successfully lobbied at the last minute for tax credit eligibility to take into account the tightly integrated North American automotive supply chain.

Leading trade lawmakers and their staff insist they’ve weighed trade considerations – and decided to give other nations a taste of their own medicine.

“Many countries, including our European partners, have long been committed to substantial investment in their national industries,” the representative said. Dan Kildee (D-Mich.), a tax credits supporter on the House Ways and Means Committee, said in response to criticism from allies of the law.

The actual terms of any resolution remain elusive and could involve broadening the interpretation of the law in such a way as to expose the government to legal action from unions or any other angry domestic industry. The Treasury Department is tasked with implementing the law in early 2023, and Biden said it could be done flexibly. Hill staffers and former administration officials warn that a loose interpretation poses risks, as the wording of the law is quite explicit about favoring U.S. producers.

“They will be sued and will lose,” if they try to significantly change the law, a member of staff at a Ways and Means said.

Republicans have widely opposed Biden’s climate legislation, and for some lawmakers, tax credits were among the reasons. There are free traders, for example, who argue that subsidies have been poorly controlled and therefore threaten to undermine global trade relations.

“How can we hold other countries to account for their trade commitments if we are not honoring ours? said Rep. Adrian Smith (R-Neb.), the top Republican on the Ways and Means Commerce Subcommittee. “We need to promote domestic manufacturing and strengthen supply chains without compromising relationships with our trading partners.”

representing Kevin Brady (R-Texas), the top Republican on the Ways and Means Committee, said he needed to “check the facts” of Biden on his statement that he never intended the tax provisions of the law to be done at the detriment of the allies.

“The fact is that they knew, absolutely knew, thanks to the trade missions of [Canadian] Prime Minister Trudeau, from discussions we had with the EU, Korea and others that they risked a trade war and retaliation against American products and services if they went ahead. And they went on like that,” said Brady, who is retiring at the end of this Congress.

“They broke it; they have to fix it,” he said of Democrats’ need to fix trade relations.

Doug Palmer contributed to this report.

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