After publicly falling out, Olaf Scholz and Emmanuel Macron have found something they agree on: mounting alarm over unfair competition from the U.S. and the potential need for Europe to hit back. French President Emmanuel Macron and German Chancellor Olaf Scholz want Europe to negotiate with the United States regarding the Inflation Reduction Act and have threatened retaliation otherwise.
They agreed that recent American state subsidy plans represent market-distorting measures that aim to convince companies to shift their production to the U.S., according to people familiar with their discussions. And that is a problem they want the European Union to address.
What is Reduction Inflation Act ?
President Joe Biden signed the Inflation Reduction Act of 2022 into law on Aug. 16. The Inflation Reduction Act aimed to make historic investments in the nation’s social safety net. The new bill makes the largest investment in combating climate change in U.S. history, lowers the cost of prescription drugs and raises taxes on corporations.
Why Germany & France angry?
The meeting of minds on this issue followed public disagreements in recent weeks on key political issues such as energy and defense, fracturing what is often seen as the EU’s central political alliance between its two biggest economies. But even though their lunch came against an awkward backdrop, both leaders agreed that the EU cannot remain idle if Washington pushes ahead with its Inflation Reduction Act, Which offers tax cuts and energy benefits for companies investing on U.S. soil, in its current form.
Specifically, the recently signed U.S. legislation encourages consumers to “Buy American” when it comes to choosing an electric vehicle – A move particularly galling for major car industries in the likes of France and Germany.
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Possibility of Trade War :
The message from the Paris lunch is: If the U.S. doesn’t scale back, then the EU will have to strike back. Similar incentive schemes for companies will be needed to avoid unfair competition or losing investments. That move would risk plunging transatlantic relations into a new trade war.
Macron was the first to make the stark warning public. “We need a Buy European Act like the Americans, we need to reserve our subsidies for our European manufacturers,” the French president said. Macron also mentioned similar concerns about state-subsidized competition from China: “You have China that is protecting its industry, the U.S. that is protecting its industry and Europe that is an open house,”
Dilemma for Germany:
Crucially, Berlin – which has traditionally been more reluctant when it comes to confronting the U.S. in trade disputes – is indeed backing the French push. Scholz agrees that the EU will need to roll out countermeasures similar to the U.S. scheme if Washington refuses to address key concerns voiced by Berlin and Paris. Scholz is not a big fan of Macron’s wording of a “Buy European Act” as it evokes the nearly 90-year-old “Buy American Act,” which is often criticized for being protectionist.
In a blow to Germany’s industrial core, chemical giant BASF announced plans Wednesday to reduce its business activities and jobs in Germany, with company chief Martin Brudermüller citing heightened gas prices – Which he criticized for being six times as high as in the U.S. – as well as increasing EU regulation as the reason.