The European Commission obtained very little from Washington in terms of concessions on the Inflation Reduction Act this week. There is in fact, little the EU can do to see the United States change course.
In many ways the whole diplomatic episode around US clean tech subsidies that began in the autumn 2022 is about psychology and the quest for respect. The best way to get respect is to do better policies – and herein lies Europe’s problem.
Even more talk with Washington
Commission president Ursula von der Leyen was in Washington this week to wrestle a better deal out of the US green tech subsidies programme, the US Inflation Reduction Act. The latter is riddled with discriminatory measures that flout the global trade rule-book and hurt EU firms. Worse, Washington doesn’t care.
On Friday (10 March) von der Leyen obtained promises of further negotiations on critical raw materials. These negotiations will be about “enabling relevant critical minerals extracted or processed in the European Union to count toward requirements for clean vehicles in the Section 30D clean vehicle tax credit of the Inflation Reduction Act,” says the joint communiqué.
This comes on top of an implicit understanding that the US will allow EU-made electric vehicles to qualify in subsidy programmes via relevant guidelines in the regulations.
The two sides also launched a “Clean Energy Incentives Dialogue to coordinate our respective incentive programs so that they are mutually reinforcing”.
This dialogue will become part of the Trade and Technology Council, the big EU-US talk-shop set up in 2021 that meets twice a year and which has so far delivered very little, apart from EU alignment on US export controls to Russia.
What is astonishing for anyone who has been observing the transatlantic trade conversation for many years is the sheer level of obsession in Brussels and key capitals with what the United States is doing and not doing in trade policy and on climate change. For this long-time observer, this quasi-paranoia is unprecedented.
Too much political capital spent on one single industry
The other astonishing fact for the outside observer is how much political capital is invested in defending the interests of one single industry in Europe: the car industry.
The national governments that are pushing around the commission, chiefly among them, but not only, Germany and France, are so gobbled up by their automotive lobby and/or reindustrialisation obsession that they instil short-termism and myopia into a Brussels policy making machinery that is supposed to be working on longer-term policy making.
The third reason to be astonished factor is how little thought is given to the EU’s very own share of responsibility in the subsidy race we are in. Who started electric vehicle battery subsidies? The United States or the EU? Ever heard of industrial policies such as the Batteries Alliance anyone? That started in 2017!
And why is nobody saying out loud that the EU is pouring double the amount of ‘green tech’ subsidies as a share of its economy than the United States is? Who invited the Teslas of this world into the Brandenburgs of Europe? Did they just invite themselves in? Did we, back then, perhaps snatch away some investments that might have been made in the US instead?
And why are we in Europe paying so much tax money to keep the levels of car production up?
We all know that turning to e-vehicles – and electrifying our energy system – means not only more expensive cars but also new environmental problems with raw materials mining. These issues raise new intractable political problems.
And they come with their related unequal trade and investment treaties with emerging markets and developing countries in Africa, Latin America and Asia. Can we blame theses for accusing Europeans of neo-colonialism ?
While those neo-colonialism claims are mostly exaggerated, they do contain a kernel of truth. Because in return for signing up to our rules the Global South countries in their FTAs with us get very little in terms of essential market access to Europe. And now we even don’t want to take in their brown people with our increasingly inhuman immigration policy that is now infecting the EU’s General Scheme of Preferences.
Worse, by mobilising the commission to do the bidding for our electric vehicles almost exclusively, we are keeping afloat an industry that has been tainted by the Dieselgate – and it is not only Germany’s.
Better transport and climate policies needed
We should instead be seeking to contain the growth of the individual-car industry and focus on investing in upgrading mass transit and our urban, suburban and countryside public transport networks. There has been an attrition in investment here for many years in these areas. The state of public transport after the pandemic has only gotten worse.
Doing the right thing here would have the double positive effect of making for a better climate policy and improve our social and civic fabric. It would also lead to jobs in a broader range of sectors from engineering to coffee shops in train stations.
Indeed it is places that are disconnected or badly connected to the rest of their countries and rely on the car only to get around that are most prone to national-populism and nihilistic politics such as those witnessed with France’s yellow-vest movement.
Each time yours truly sees a big electric or hybrid SUV driving around the narrow streets of a European city, bullying its way forward, taking so much space, yours truly wonders what is wrong with us as a society? And why, more importantly, is there public money involved in this?
When you dig around in the intra-European conversation about US clean tech incentives you find that the real issue is that for some industries the problem is the energy price difference across the Atlantic. But are the Americans at fault here?
Or is it policies such as Germany’s hasty and short-sighted pull-out of nuclear energy in 2011 combined with a dogged pursuit of Gazprom gas from Russia via a brand-new expensive pipeline under the Baltic sea?
EU’s China problem
Now that the EU is going to the US to make righteous claims to be part of their energy transformation, Washington is setting conditions related to its own China policies.
Washington wants Europeans to turn away from China, or at least do so in a more decisive way: some say Germany’s current expelling of Huawei from its 5G networks is part of the conversation about cars with Washington.
There are some scandalised reactions to that in Germany.
But why can’t we come clean on the fact that the big member states have gotten their China policies wrong for too long?
Europeans tend to think – probably rightly – that the US is going too far in seeking to contain China’s economic development, as one can suspect in the latest iterations of its semiconductor export restrictions.
But have we as Europeans come clean about why we aren’t capable of responding with a better and certainly more unified hence more powerful policy towards China?
Instead, we refuse still today to countenance developing a serious common EU foreign policy. This is partly because the blunders and mediocrity of the China and Russia policies coming out of Berlin and Paris and others for far too long now mean the smaller countries don’t trust us collectively going down that path. In current circumstances, with a war raging in Ukraine, it is just safer and more rational to trust papa United States.
The European Commission never heeded calls by think tanks, business, the European Parliament to establish a dedicated China Task force with ideally the best minds working on analysis and policy response and helping the EU establishing its own, credible and consistent approach to China.
The result of this is that individual EU member states have their own readings of the situation and do their own thing. In practice today they are being strong-armed by China.
And when they are not being strong-armed by China then they are strong-armed by the US, as seen in the latest semiconductor production equipment export control episode where this clearly ended up being a bilateral matter between Washington and the Hague.
Respect is not due, it is something one earns
Being on the receiving end of a self-serving rule-flouting United States is unpleasant for an EU that sees itself as a global commercial power that has no qualms about regulating US tech and others firms above the heads of Washington and generally thinks it is somehow morally to superior to the US.
The best thing we should do as Europeans is calm down, watch possibly with some glee how many of the US subsidies won’t be so terrible after all – conditions are so onerous on firms to receive the monies that the success of their programme will probably be fairly limited.
Instead we should focus on the long-term, reduce our economy’s and societies’ excessive dependency on cars and make our trade policy more inclusive and broad-based, serving all other sectors too.
Only by fixing ourselves will we be able to gain the respect we believe is due to us by our US friends and allies.
