Brussels and Washington are locking horns on Joe Biden’s latest tax on electric vehicles produced outside the US, under his Inflation Reduction Act in an effort to push so-called “Buy American” provisions for green industries.
The American legislation has prompted the EU Commission to push on the emergency button to save Europe’s economy, which according to BusinessEurope President Fredrik Persson is “drowning”.
He said: “It’s a bit like drowning. It’s happening quietly.”
In a bid to save the already-crippling EU’s economy, the EU executive is believed to be working on an emergency plan set to funnel money into high-tech industries, according to two senior officials speaking to Politico.
The scheme would come under the European Sovereignty Fund, already showcased by Ursula von der Leyen in her State of the Union speech.
European Commissioner Thierry Breton warned that the US subsidy scheme is posing an “existential challenge” to the bloc’s economy, after a meeting with EU industry leaders on Monday.
A survey by the European Round Table for Industry published today showed EU business leaders’ concerns over the issue, finding that CEO confidence in the bloc is now at an all-time low.
“Almost 9 out of 10 respondents expect business conditions for the economy as a whole will worsen either moderately or substantially over the next six months. The score for this portion of the Measure stands at 22, the lowest ever recorded since the launch of this biannual survey in H1 2020. As the war in Ukraine shows no signs of ceasing, elevated uncertainty is most likely to keep exerting downward pressure on the region’s growth prospects in the short term,” they wrote.
Biden’s Inflation Reduction Act’s $370 billion maxi investment plan provides direct subsidies to US companies operating in the green sector, and contains incentives to buy electric vehicles only if they are made in the USA.
The US law will come into force on January 1.
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The move infuriated Paris and Berlin the most, pushing French President Emmanuel Macron and German Chancellor Olaf Scholz to issue a joint statement calling on the EU Commission to “explore industrial policy possibilities” to safeguard European industries.
The statement, signed by French Economy Minister Robert Habeck and his French counterpart Bruno Le Maire, reads: “We call for an EU industrial policy that enables our companies to thrive in the global competition.”
It adds: “We want to coordinate closely a European approach to challenges such as the United States Inflation Reduction Act.”
Speaking after a meeting with Mr Habeck in Paris, Mr Le Maire warned Europe must not become the “last of the Mohicans” in the global trade race.
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He said: “We have entered a new globalisation. “China has been in this globalisation for a very long time with massive state aids that are reserved exclusively for Chinese products, the fact is that the US has just entered this new globalisation before our eyes to develop its industrial capacity on American soil.
“Europe must not be the last of the Mohicans.”
Echoing Mr Le Maire’s comments, Mr Scholz also warned on Tuesday that “an overbidding competition in the area of subsidies and protective tariffs, such as some see coming our way as a result of the US Inflation Reduction Act.”
He also suggested that a trade deal with the US could also help reduce tensions with Washington.
He said: “We should also take another very close look at the idea of an industrial tariff agreement with the United States.”