U.S., EU Make Nice Over Clean Energy Industrial Policy

But some in Europe are super leery of pulling back from their trade relationship with China.

President Biden last week met with European Commission President Ursula von der Leyen in the Oval Office last week, and how about that: There appears to be a thaw in a frosty relationship between the U.S. and the European Union which had heavily criticized Washington’s Inflation Reduction Act (IRA) for  excluding European-made electric vehicles (EVs) from qualifying for its tax credits.

The Biden administration and the EU are beginning “talks to bolster critical minerals supply chains between the two allies, with an eye toward allowing EU companies to take advantage of key electric vehicle tax credits in the U.S. climate law,” reports Politico, and the EU is looking for ways to allow American-made goods to be made eligible for its own European Green Deal, says German broadcaster DW.

Here’s more from Politico:

The governments will also engage in “a dialogue on subsidy transparency,” White House press secretary Karine Jean-Pierre said, adding they would set a deadline for completing negotiations on standards to promote steel and aluminum made with fewer carbon emissions.

After a winter during which the EU threw constant barbs at the U.S. over Biden’s signature climate law and its $369 billion of green incentives, many on both sides of the Atlantic are hoping the visit signals the beginning of a spring thaw. The message from Biden and von der Leyen was that whatever differences they may still have as they try to favor their own clean energy industries, the U.S. and Europe both need to contain the same threat — China, the industry’s global front-runner.

It’s encouraging to hear about the resumption of negotiations around the trade of clean steel and aluminum; pursuing such a deal was a wise idea when it was first announced, and it’ll benefit industry and workers both here and there when it’s completed.

It’s also good news, as Politico notes, that attempts to weaken the IRA so European-made EVs can win tax credits meant to drive business to American workers aren’t likely to go anywhere.

But the main thrust of this – that Europe and the U.S. are better off working together to counter the huge, non-market, economic heft of China – isn’t going over super well back in Europe, where plenty of European governments don’t want to appear too close to the U.S. for fear of angering China and rupturing lucrative trade ties.

These critics argue the European Commission, which is the executive branch of the EU, is getting out over its skis here. Politico Europe (naturally) has the story:

“For sure the Commission has a competence on trade,” said one senior EU official speaking on condition of anonymity because of the internal sensitivities. “But we are speaking of geopolitical strategy, about the [EU] position at international level … [this]… has to be done with a mandate of the European Council.”

Sounds like Europe has some things to work out!

European relations with China in some cases appear to be fraying, despite the significant amount of trade between Beijing and virtually the entire continent. Germany, which has significant commercial ties with China, is taking undertaking a review of Chinese tech suppliers Huawei and ZTE, already long scrutinized (and in Huawei’s case, banned) by the United States. The Netherlands has agreed to join the U.S. in restricting sales of semiconductor manufacturing equipment to China. Public opinion across Europe suggests citizens are beginning to favor a tougher line against Beijing, and its diplomacy with governments across Central and Eastern Europe seems to be on thin ice.

Will Europe’s relative distancing affect the negotiations between the U.S. and EU as they try to make nice with each other over their programs to boost domestic clean energy industries? Man, I don’t even have an opinion. But European consternation over green production subsidies aren’t going away anytime soon. This will be a story in the months to come as the continent works out what its positions will be.