Press play to listen to this article
Voiced by artificial intelligence.
LONDON — Three years after Britain left the EU to chart its own course, it finds itself caught in a simmering transatlantic trade war between two economic giants.
In one corner sits the United States, whose Congress in August passed the Biden administration’s much-vaunted $369 billion green subsidy program, part of the Inflation Reduction Act (IRA).
On the other side is the European Union, which fears Washington’s usury in subsidies will siphon investment — particularly in electric vehicles — out of Europe and hit automakers hard.
The EU is preparing its own subsidy package in retaliation; Washington shows little sign of changing course. Fear of a trade war is growing rapidly.
The United Kingdom, now sitting just outside the ring, can only watch in horror and quietly plead with Washington to soften the blow. But there is little evidence that the soft-soft approach is bearing fruit. Britain now risks being crushed by both sides.
“It is not in the UK’s interests for the US and EU to go down this route,” said Sam Lowe, Partner at Flint Global and expert on UK-EU trade policy. “Given the UK’s current economic position, it really can’t afford a subsidy war with either.” The UK government has just embarked on a round of fiscal austerity after months of political turmoil following a market crisis.
For iconic British car brands, the dispute over the Biden government’s IRA comes at a real cost.
The US is the second largest destination for UK-made vehicles after the EU, and the automotive sector is one of the UK’s largest exporters of goods.
Manufacturers such as Jaguar Land Rover have publicly warned of the “very serious challenges” that the new US law and EV tax credit plan pose to boost American industry.
Kemi on the case
UK Trade Secretary Kemi Badenoch has for months privately been urging senior US officials to mitigate the impact of electric vehicle subsidies on Britain by working out exemptions, UK officials said.
When Trade Secretary Gina Raimondo visited London in early October, Badenoch urged her to reconsider the strategy. The UK trade chief brought the same message to Washington in a series of private meetings earlier this month, including a meeting with Deputy Treasury Secretary Wally Adeyemo.
Badenoch has “raised this issue on many levels,” said an official at Britain’s Department for International Trade, citing talks with US Ambassador to Britain Jane Hartley, with Foreign Secretary Raimondo, “as well as with members of the Biden government and senior officials from both parties.”
The cabinet minister has also spoken out publicly, telling the Cato Free Market Institute in Washington earlier this month that “the significant new electric car tax credits not only exclude British-made vehicles from the US market, but also affect manufactured vehicles.” in the US by British manufacturers.”
US Secretary of Commerce Gina Raimondo | Mandel Ngan/AFP via Getty Images
Badenoch’s comments echo concerns expressed by both the UK car lobby group Society of Motor Manufacturers and Traders (SMMT) and Jaguar Land Rover in comments to the US Treasury Department.
The SMMT warned that Biden’s green vehicle package contains several “concerning elements that risk creating an uneven competitive environment, with UK-based manufacturers and suppliers potentially penalized”. The lobby group targets the loan program’s demand to build green vehicles in North America, with significant subsidies available only if critical minerals are sourced from the US or a US ally.
In response to Washington’s plans, the EU is preparing billions of dollars in subsidies for its own industries hit by the US law, which also offers tax breaks to boost American green companies like solar panel makers. Britain faces pressure in both markets while not having a say in Brussels’ decision.
Protectionism, affecting like-minded allies, “is not the answer to the geopolitical challenges we face,” the UK Department of Commerce official warned, adding “there is a serious risk” that the law could damage “vital” global supply chains of batteries and electric vehicles.
The talks Badenoch held in Washington this month are “reassuring,” the official added. “But it’s up to them to address and find solutions.”
“ton to do”
Still others believe Badenoch will find it difficult to persuade her US counterparts – now cooling off from a much-vaunted bilateral trade deal – to act. “The US has minimal focus on how its policies will affect the UK,” admitted a US-based representative of a major corporate group.
While the UK and US are “very close allies,” they added, “those in Washington just don’t really see the UK as an interesting trading partner and market right now.” They noted that the US is more focused on pushing back against China, meaning Badenoch has “a lot of work to do” to get the government to soften the IRA.
Nonetheless, the US is still working out how its law will actually be implemented, the businessperson said, and is putting together a working group to study how the IRA affects trade alliances. This has the potential, they added, “to allay a lot of concerns from the UK”.
Late Tuesday night, the SMMT urged the UK government to provide more domestic support to the sector as it prepares to ramp up its own electric vehicle production. The group wants to extend domestic support for corporate energy bills until the end of April; a boost for government investment in green energy sources; and faster national rollout of charging infrastructure and staff training.
Meanwhile, Britain’s options seem limited.
Newly manufactured Land Rover and Range Rover vehicles waiting to be loaded for export | Paul Ellis/AFP via Getty Images
The UK “could consider legal action” and take the US to the World Trade Organization or challenge the EU through provisions in the post-Brexit trade and cooperation agreement, said Lowe of consultancy Flint. “But — to be honest — they both don’t care what we have to say.”
Anna Jerzewska, trade adviser and associate fellow at the UK Trade Policy Observatory, suggested that “pushing your own domestic policies and efforts to support strategic industries is perhaps more important” than complaining about foreign subsidy schemes. However, she noted that after a “chaotic” political period, Britain “is likely to take longer to respond to external changes and challenges”.
And in truth, “Britain cannot afford to outrun the US and the EU,” said David Henig, a trade expert at the think tank European Center For International Political Economy.
Outside the EU, Britain could work to attract allies like Japan and South Korea, who are also unhappy with the Biden government’s protectionist measures, he noted. “But I don’t think we’re in that position,” Henig said, as it would take a concerted diplomatic effort and the UK auto sector would need to be “well positioned first of all” without struggling like that. He predicted that London’s lobbying in Washington and Brussels “will get nowhere”.