EU Will Respond to ‘Distortions’ in Biden’s Inflation Reduction Act: Von der Leyen

EU Will Respond to ‘Distortions’ in Biden’s Inflation Reduction Act: Von der Leyen
European Commission President Ursula von der Leyen makes a statement in Brussels on April 27, 2022, following the decision by Russian energy giant Gazprom to halt gas shipments to Poland and Bulgaria. (KENZO TRIBOUILLARD/POOL/AFP via Getty Images)

European Commission President Ursula von der Leyen on Dec. 4 said the European Union must act to address “distortions” created by the Biden administration’s Inflation Reduction Act (IRA)—part of Biden’s “Made in America” push.

The EU and the United States are treading precariously close to a major trans-Atlantic trade dispute, at a time when Western nations want to show unity in the face of challenges from authoritarian regimes in Russia and China.

The IRA, approved by the U.S. Congress in August, provides $369 billion in subsidies for climate and green energy policies, including tax credits for companies with facilities in the United States—including those that offer electric cars “assembled in North America,” as well as support the development of domestic battery supply chains.

For example, electric car buyers are eligible for a tax credit of up to $7,500 as long as the vehicle runs on a battery built in North America with minerals mined or recycled on the continent.

It’s especially grating for the EU, as the IRA program may lure away businesses and disadvantage companies in Europe, from car manufacturers to makers of green technology, that are already dealing with sky-high energy costs.

During a speech at the College of Europe in the Belgian city of Bruges, the EC chief said that while “competition is good,” this competition “must respect a level playing field.”

“So we must take action to rebalance the playing field where the IRA and other measures create distortions,” von der Leyen said.

“In other words, we need to do our homework here in Europe and at the same time, we have to work with the United States to mitigate competitive disadvantages.”

“Competition between Europe and the United States can push both our industries to excel, to innovate, to transform faster, and all this is necessary. And this is why I believe in the need to invest in two clean energy industrial bases on both sides of the Atlantic,” she said.

“Europe will always do what is right for Europe. So, yes, the European Union will respond in an adequate and well-calibrated manner to the Inflation Reduction Act. But does this mean that we will engage in a costly trade war with the United States in the middle of an actual war? This is not in our interest, and nor in the interest of the Americans and it would harm global innovation, too.”

The Biden administration has said there are ways to work with the EU to address its concerns, according to a Financial Times report.

Following a visit to the White House in early December, France’s finance minister, Bruno Le Maire, said the two governments were in discussions to address the issues.

“We have one competitor called China. The strategic goal of the United States, it seems to me, is not to weaken Europe but, on the contrary, to work in partnership with Europe,” he said.

Asian car manufacturers have also lobbied their governments in South Korea and Japan to challenge the IRA requirements, seeking relief from the requirements for foreign automakers. South Korea’s trade ministry said in August that the IRA was potentially in violation of WTO rules.

A South Korean official said the IRA program violates “international trade norms” and that it plans to use “various channels to explain to the U.S. government and U.S. Congress why the relevant clause is discriminatory.”

If those measures don’t work, South Korea is exploring two separate legal actions, including possibly cooperating with Japan and Germany. South Korea imports 90 percent of its critical minerals from China—explicitly violating the IRA stipulation.

Katie Spence, Naveen Athrappully, and The Associated Press contributed to this article.