The United States now wants to invest a lot of money in the fight against climate change. E-cars for the mass market be subsidized. For the German car manufacturers, however, this may not be good news: Because buyers only get the government subsidy if the car was assembled in the USA – and if the valuable battery is also sufficiently “made in the USA”. German models would then sometimes not be funded, which would be a clear competitive disadvantage. And this of all times at a time when electromobility could experience its breakthrough.
“This is possibly a subsidy for American products that violates multilateral trade rules,” says Jasmin Gröschl, a trade expert at the Munich Ifo Institute. The EU Commission has already public complained: Washington could trigger a subsidy race and lure investments and factories away from Europe.
To smooth things over a little, the US State Department recently sent Ramin Toloui on a diplomatic mission to Europe. After his station in Brussels, the head of the department for economic affairs in the US Department of State traveled to Munich: There Toloui met representatives of the German automotive industry in the US Consulate General and walked the few meters to the Bavarian State Chancellery.
In conversation with the Süddeutsche Zeitung Toloui defended American politics. The legislative package will help to protect the climate. “The green future also offers European companies many opportunities.” However, the concerns of the Europeans about the promotion of e-cars have reached US diplomacy: “We have understood that there are concerns.” Toloui pointed out that it is not yet clear exactly how the law will be implemented. The public consultation is currently running – also open to German car companies.
“It’s America First, but it’s even tougher than Donald Trump”
Although there are serious doubts on the part of German industry that climate protection is really the primary reason behind all the plans. Rather, many German managers see a demarcation from China as the main reason for the new funding. The board of directors of a German car manufacturer said Süddeutsche Zeitung: “That is America Firstbut even tougher than with Donald Trump.” A representative of the German auto industry involved in the consultations also spoke of an “America First” policy – which is now coming “with a green coat of paint”. VDA President Hildegard Müller can be quoted openly , the car industry’s chief lobbyist, describes linking e-car subsidies to local production as a “discriminatory mechanism”. Both the EU and the federal government must take action, the argument is obvious: In Germany, “all vehicles, too Imports, promoted immediately”.
A return to the nation state instead of free trade – a nightmare scenario for Germany as an export nation. Many car managers are wondering: is this a threat under Biden, who seems to be so much closer to Europeans and Germans than his predecessor? In the end, will the already numerous German factories in the USA have to be expanded at great expense and does the even more lucrative Asian business have to be cut?
The German industry representatives diplomatically but clearly made it clear to the traveling US officials that they think little of a forced relocation to the USA and of turning away from China: the preference for local production contradicts every idea of free trade and the idea a work-sharing world with different partners. And you don’t want to slam the doors on China – it’s the largest market on the one hand. On the other hand, there are also many goods and parts that China exports for the European auto industry, so decoupling is out of the question.
Nothing has been finally decided yet, which was also heard at the group headquarters after the meeting on Friday in Munich. And yet the conversation with the US official caused more concern than reassurance: what if the US really does demand that the Germans or the Europeans have to make a choice: do you want to do business with the US or with China?
“These investments could in turn create jobs and thus secure votes for Biden.”
“The measures are causing resentment and confusion in Europe,” is how trade economist Gröschl describes the situation. But she is more optimistic than the managers. Brussels does not have to resort to counter-tariffs at the moment. “There is reasonable hope that the EU and the US are not heading towards another trade war.” In view of the global situation, neither side wants that.
After the wild trade disputes with Trump, Gröschl sees many positive developments since Biden has been president. There is progress in aircraft construction, in steel and aluminum, in data protection. But Biden also wants to protect domestic jobs. “We hear a completely different rhetoric than under Trump – but the Biden administration’s trade policy agenda will continue to contain protectionist aspects,” says Gröschl. This can now be seen in the e-car funding: the Biden government may be able to get companies to rely more on the USA. “These investments could in turn create jobs and thus secure votes for Biden – especially in the Midwest of the USA,” says Gröschl.
Chad Bown observes trade policy from Washington for the think tank PIIE. He also says: “There won’t be a trade war, there are bigger problems.” However, the US funding for electromobility is already causing friction. Bown emphasizes the third goal, which is in addition to climate protection and jobs in the US legislative package: “It’s about China.” The USA wanted important raw materials and batteries no longer to come from the country in the future. “New supply chains for electromobility will be now built up,” says Bown. And if Washington has his way, they should lead much less through China or not at all. So are the German car companies collateral damage of American anti-China policy? Or do they have to rethink? “The US Congress could allow cars from friendly countries to be included in the funding,” says Bown – which, in view of the complex US domestic politics, is meant as an idea, not as a prognosis.
US diplomat Toloui is making an effort and promises to remain open to talks. Promoting green technology on a large scale without distorting the market is just difficult, he says. “We want to make sure that money transfers to companies are coupled with the right incentives.” The solution does not have one country alone. “This is new territory for all our governments.”