Federal Finance Minister Christian Lindner warned on Saturday of an imminent trade war between Europe and the United States over Washington’s multi-billion dollar climate protection and inflation package.
Smoother transatlantic relations since President Joe Biden succeeded Donald Trump have hit a stumbling block with the Inflation Reduction Act (IRA), passed by the US Congress in August.
What did Lindner say?
“The US is our partner of shared values, but at the same time there is an enormously protectionist economic policy,” he told the newspaper “Welt am Sonntag” in a previously published comment.
Therefore, the federal government must represent German interests in Washington and point out the negative consequences for our country, he added.
Lindner said the German economy, unlike France, is closely linked to the US market. He was referring to the US being a huge market for German cars, while French automakers don’t export there.
“That’s why Germany can’t have any interest in a trade war, but has to rely on economic diplomacy.”
Lindner’s comments follow a call by German Economy Minister Robert Habeck earlier this week for a “robust” response from Brussels to the new US subsidies.
What is the Inflation Reduction Act (IRA)?
The IRA provides $370 billion for climate action and energy security, including subsidies for electric cars, batteries and renewable energy projects made in the United States.
The bill provides tax credits for each qualifying renewable energy component manufactured in a US factory and an additional 30% tax credit on the cost of new or upgraded factories that build green components.
Only countries that have signed a free trade agreement with the US, such as Canada and Mexico, can benefit from the subsidies.
Tesla and other US automakers to benefit from Inflation Reduction ActImage: Dylan Stewart/Image of Sport/Newscom/Picture Alliance
Why did the IRA worry the EU?
The subsidies have been heavily criticized by EU-based business leaders and politicians for penalizing European companies.
EU leaders say 200 billion euros ($207 billion) of the total is tied to regulations on domestic US production that may breach World Trade Organization (WTO) rules.
They note how EU state aid rules prevent EU countries from offering as generous tax breaks as the US to companies wanting to set up factories.
The EU is not the only Washington ally frustrated by the new subsidies. South Korea has also raised concerns that its automakers are ineligible for the US tax breaks.
US climate ambassador John Kerry presents carbon offset plan
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Biden reassures Macron over IRA ‘mishaps’
During a visit to the United States this week, French President Emmanuel Macron described Washington’s new tax cuts as “super aggressive” and warned that the package would “divide the West”.
Biden acknowledged there were “flaws” in the IRA advocating American-made climate technology, adding “there are tweaks we can make” to please allies, he said.
Despite the conciliatory words, several Democratic lawmakers said they have no plans to reconsider the legislation, which passed without Republican support after more than a year of negotiations.
However, a French Treasury source said on Thursday that the White House could use executive orders to grant European allies the same level of exemptions as other allies.
The federal government said this week it was keen to forge an EU-US deal to eliminate industrial tariffs that would avoid a bidding war over subsidies and tariff protection.
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mm/wmr (AFP, dpa, Portal)