Trade war threatens to overshadow EU-US summit

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When senior European and American officials gather in Washington next month, there’s a lot they’re likely to agree on — from vaccines to artificial intelligence. Just don’t bring up subsidies for electric vehicles.

A brewing transatlantic trade spat over the United States’ Inflation Reduction Act (IRA), which provides hefty subsidies for people to buy homegrown cars, is overshadowing one of the core efforts to reset the relationship between Brussels and Washington in the post-Donald Trump era. That’s the view of more than a dozen officials with direct knowledge of those discussions, who spoke about the tensions on the condition of anonymity because the matter is sensitive.

Next month’s set-piece event, known as the EU-U.S. Trade and Tech Council (TTC), involves the likes of Europe’s digital chief Margrethe Vestager and U.S. Secretary of State Antony Blinken meeting twice a year to promote greater cooperation on everything from funding joint telecommunications projects in emerging economies to working together to fight Russian disinformation.

Yet when these officials meet in Washington on December 5, their talks are likely to be hampered by disagreements over American subsidies for electric car production. The U.S. says the subsidies are needed to jumpstart the economy; Brussels says they amount to unfair protectionism.

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The stand-off, which risks getting far worse, is undermining efforts by U.S. President Joe Biden and European Commission President Ursula von der Leyen to move beyond the Trump era and consolidate ties between two of the world’s largest trade and security partners.

“There will always be disagreements,” Werner Stengg, a senior adviser to Vestager, told an Atlantic Council event last week in reference to ongoing friction between Europe and the U.S. “There will always be areas where we just don’t agree — which is normal, it happens in the best of marriages.”

Both sides will be eager to play down the rift around electric car subsidies at the tech and trade summit. Washington and Brussels are expected to use the event to announce six low-level projects to boost transatlantic cooperation, according to six of the officials cited above.

These will include funding two telecommunications projects in Jamaica and Kenya; the announcement of rules for how the emerging technology of so-called trustworthy artificial intelligence can develop; and greater coordination to highlight potential blockages in semiconductor supply chains, according to the officials. Details of individual projects may change before they are signed off by the end of the month.

European and American policymakers are also expected to outline how they can create common standards on how electric vehicles are charged; an agreement to mutually recognize each other’s vaccine manufacturing; and a pilot project so that EU and U.S. customs officials can use digital documentation tools as part of their work.

Yet the ongoing spat about Washington’s electric car subsidies, which will kick in from January, remains a significant bone of contention, even after the two sides set up a joint task force of senior officials to review trade complaints. Some European policymakers, including those from countries like Germany and France with significant domestic car-making sectors, want Brussels to take a hard line, potentially including retaliatory tariffs against American goods.

For Valdis Dombrovskis, Europe’s trade commissioner, the goal was for the IRA task force to report back on potential solutions to the stand-off before the December meeting.

But a combination of political wrangling around the U.S. midterm elections and a growing hostility within EU member countries toward U.S. subsidies has now made such feedback unlikely within the next three weeks. U.S. officials reject accusations that the planned subsidies are protectionist and counter that Europe’s own policies — including efforts to build a cloud-computing industry to compete with American companies like Google and Amazon — also constitute unfair trade barriers.

“The TTC was specially created to reign in subsidy issues. There was a commitment to inform each other to avoid subsidy wars,” said one of the EU officials. “It’s too bad the IRA now brought the whole issue of subsidies back into the spotlight.”

Clea Caulcutt contributed reporting.