One could explain the journey from Ursula von der Leyen to Joe Biden with the Old Testament. Ecclesiastes, chapter 3, verse 8. Everything, it says there, has its time. “There is a time for quarrels, there is a time for peace.” That describes the reason why the President of the EU Commission met the President of the USA on Friday: At a time when Russia is invading its neighbors with war and terror and China is threatening “conflict and confrontation”, at least in relation to between America and Europe there will be peace instead of strife. “We are not just partners, the European Union and the United States are good friends,” von der Leyen said at the start of the talks.
In the past few months, however, there had been a major hitch in this regard. Europeans have been angry since the US Congress approved the “Inflation Reduction Act” (IRA) in August 2022, which provides almost $370 billion in subsidies for America’s green industries. They fear being disadvantaged on the American market because the subsidies are primarily intended to go to companies that produce in the USA. In this way, Biden not only wants to promote the conversion of the American economy to climate neutrality, but also to bring well-paid industrial jobs back to his country.
Von der Leyen has proposed a transatlantic “Commodities Club”.
The EU expressly supports the first objective. As for the second, there is fear in Brussels that the increase Biden wants in these coveted jobs in the US could be matched by a corresponding decrease in Europe. The EU does not want to allow that.
Von der Leyen was in the White House to at least partially settle these irritations. Nothing can be changed about the IRA – the law has been passed, signed by Biden and entered into force. But Washington can still make concessions to the EU when it comes to implementing regulations. For example, there are signs that electric cars built in Europe will also benefit from the subsidies that the US government wants to give to domestic buyers, provided they are registered as lease vehicles. In addition, the EU and the US want to talk about how Europe can be given preference in the production of batteries for electric cars. The IRA provides tax privileges only for companies from countries that have a free trade agreement with the USA. That doesn’t exist between the US and the EU.
Von der Leyen has therefore proposed founding a transatlantic “Club for Critical Raw Materials” to take care of the mining and processing of important minerals or metals such as cobalt or lithium, which are processed in climate-friendly industrial products. The USA should then treat battery components that come from the member countries of this club – i.e. from the EU – as if they came from a state with which Washington has a free trade agreement. However, this exception still has to be legally secured. How long that will take is an open question. How important von der Leyen thinks it is to restore peaceful relations with Washington can be seen from who is negotiating with the US on her behalf: not just any EU commissioner or ambassador, but her close confidant and head of cabinet, Björn Seibert.
However, both Brussels and Washington are also aware that there is a larger geopolitical problem: China. Biden considers the political system competition between the democracies in North America and Europe on the one hand and the aggressive autocracies in China and Russia on the other to be the central conflict of the 21st century. This view is not shared everywhere in the EU, especially those European countries that have close economic ties with China, including Germany, have a hard time with it. So while Biden has begun to fairly consistently cut China off from American high-tech and is urging Europeans to do the same, the EU is much more hesitant.
Will Europe follow America’s call for more pressure on China?
Instead of “decoupling”, von der Leyen prefers to speak of “de-risking” with a view to Beijing. Translated, this means: Europe should not completely decouple itself from China, but only reduce the one-sided dependency, which is politically so risky. That sounds softer than Washington would like it to be. At the same time, it is said from EU circles that the subsidies with which the Chinese state is feeding green and other future technologies are a much bigger problem than the IRA. So there are transatlantic intersections when assessing China.
And there is a willingness in Europe to follow America’s call for more pressure on China – if only to appease Washington so that European companies can also get the IRA subsidies. High-ranking EU officials assure that the Union would undoubtedly impose sanctions on China should Beijing actually supply arms or ammunition to Russia and thereby fuel the war in Ukraine. The Dutch group ASML, which builds machines for the production of semiconductors, apparently wants to restrict exports to China. European countries and institutions are taking action against Chinese companies – from Huawei to Tiktok. And von der Leyen’s “Raw Materials Club” also aims to break China’s near-monopoly on the market for rare earths and other important high-tech components.
Despite all efforts to reach an agreement, however, a residual risk for the transatlantic relationship remains. Washington has approved the enormous IRA subsidy package for its industry and there is nothing to be done about it. For its part, the EU Commission has followed suit and relaxed the rules on state aid for manufacturers of climate-friendly products in Europe.
Brussels wants – literally – to prevent at all costs that new factories for solar cells, wind turbines, electric cars or batteries are built in the USA instead of in Europe because of generous subsidies. The danger that Europe and America will engage in an extremely expensive subsidy competition, even though China is the much greater and also common challenge, has not been banned even after the meeting in the White House.