Olaf Scholz and Emmanuel Macron have reconciled by agreeing on the growing concern over unfair competition from the United States and the probable necessity for Europe to retaliate.
The French president and German Chancellor spoke for over three hours over a lunch of fish, wine, and Champagne on Wednesday in Paris about their shared concerns about the Inflation Reduction Act.
Biden’s Inflation Reduction Act
American President Joe Biden recently brought the Inflation Reduction Act. The new legislation only supports electric vehicles assembled in North America. Countries view the EV and automobile sections of the Inflation Reduction Act as being both against international trade laws and the growing economic relationships with the US.
According to the Inflation Reduction Act, domestically produced electric vehicles are eligible for a $7,500 tax credit. Starting in 2023, the tax credit is subject to new limits. Vehicles must still be produced in the United States, but there are now stricter requirements for the mineral composition and the components of EV batteries.
Europe coming together
The Inflation Reduction Act is very crucial to the automobile industry of Europe. The automobile sector has a substantial economic multiplier impact. It is crucial for downstream businesses like ICT, maintenance, and mobility services as well as upstream industries like steel, chemicals, and textiles. Employment in the EU automotive sector is estimated to be 13.8 million.
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The automobile industry alone accounts for more than 7% of the EU GDP revenue. The takeaway from the Paris lunch is that the EU will have to retaliate if the U.S. doesn’t make concessions. Companies will require comparable incentive programmes if they want to avoid losing investments or engaging in unfair competition. That action would run the risk of igniting a new trade war in the transatlantic relationship.
Macron said, “We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers.”
Importantly, Berlin is in fact supporting the French initiative. Berlin has typically been more reluctant to challenge the United States in trade and other issues. According to individuals familiar with the chancellor’s thinking, Scholz concurs that the EU will need to take countermeasures to the American plan if Washington refuses to address important concerns raised by Berlin and Paris.
Close US allies with specialised car sectors, such as South Korea, Germany, France and Japan have expressed their displeasure regarding the act by Biden. Under the present Democrat government, the US has already lost a large number of allies and is certain to lose some more.
Europe is already losing its businesses to US. Several companies have announced expansions in US. Automobile companies like Volkswagen, Jewellery Company Pandora A/S, Steel Company Arcelor Mittal SA are some of the major ones. German daily Handelsblatt has reported how more and more German firms are increasing their headquarters in the USA and leaving their operations in Europe.
Europe doesn’t want to lose its industries to US, therefore they have forewarned Biden of the ramifications as a consequence of the Inflation Reduction act. Biden who is on a mission to bereft Europe of its prosperity won’t do anything to resolve the issues. So, let’s brace ourselves for another trade war.
