Talk is cheap. War of subsidies will go on, since it is good for domestic companies

"The president’s “Made in America” plan has drawn accusations of protectionism from Europe as the United States tries to keep its Western allies aligned against Russia.

WASHINGTON — President Biden and President Emmanuel Macron of France sought to ease trans-Atlantic tensions over Mr. Biden’s domestic manufacturing agenda on Thursday, with both leaders emerging from an official state visit promising to work together on economic policies that have rankled European officials.

Mr. Biden promised to make “tweaks” to a sprawling clean energy law passed earlier this summer that Mr. Macron said was at risk of fracturing the economic alliance between America and Europe.

Officials in France and other parts of Europe have said the law, known as the Inflation Reduction Act, provides an unfair advantage to U.S. firms by offering generous tax incentives that encourage North American manufacturing.

Since his arrival in Washington on Wednesday, Mr. Macron has made clear his displeasure over Mr. Biden’s domestic policies, including a separate bill to boost U.S. semiconductor manufacturing known as the CHIPS Act. The French president warned in a speech at the French embassy on Wednesday evening and during an interview on ABC’s “Good Morning America” that the laws could hamper relations between the U.S. and Europe and freeze multinational investment on both continents.

“The choices made, whose objectives I share, in particular the Inflation Reduction Act and the CHIPS Act, are choices that will fragment the West, because they create such differences between the United States and Europe,” Mr. Macron said at the embassy event.

By the time of their joint news conference on Thursday afternoon, Mr. Biden appeared ready to appease Mr. Macron.

“We’re going to continue to create manufacturing jobs, but not at the expense of Europe,” Mr. Biden said, adding that he was going to address “glitches” in the Inflation Reduction Act.

Yet it is unclear how the president might satisfy Mr. Macron’s concerns. Any changes to the law, which passed with only Democratic support, would likely require an act of Congress. Such action could soon be hard to come by: Republicans will take control of the House next year, and key Democrats in the Senate have shown little willingness to water down measures they cemented into law in hopes of bolstering American manufacturing competitiveness.

Still, Mr. Macron appeared pleased with the assurances Mr. Biden gave him in the course of a morning meeting at the White House, which included a protracted discussion of Mr. Biden’s economic plans. “We agreed to re-synchronize our approaches, our agendas, in order to invest in critical emerging industries,” Mr. Macron said at the news conference.

Mr. Biden’s plans to boost American manufacturing are part of his administration’s efforts to position the United States as a leader in reducing the fossil fuel emissions driving climate change and to become less reliant on foreign nations for critical materials like semiconductors.

But the Biden plan has fueled anger across Europe at a critical moment, as the United States tries to keep its Western allies aligned against Russia. Crucial allies in that effort are increasingly accusing the United States of undercutting them at the expense of domestic priorities.

Those frustrations have clouded what had been a trans-Atlantic effort to starve President Vladimir V. Putin of oil revenues. A looming European ban on Russian oil prompted the Biden administration to push for a workaround that would allow critical supplies of it to continue flowing in order to prevent a spike in global oil prices. European officials reluctantly agreed earlier this year to embrace a U.S. plan that would impose a cap on how much Russia could earn for each barrel it sells.

Determining that price has divided the European Union, leaving the issue in limbo just days before the embargo is set to take effect.

Allies’ frustration with the United States has been building since this summer, when Mr. Biden signed two bills aimed at giving a leg up to American industry. The Inflation Reduction Act, a sprawling climate and energy law, offers incentives to support America’s electric vehicle industry and the CHIPS Act contains $52 billion in subsidies and tax credits for any global chip manufacturer that chooses to set up new operations or expand existing ones in the United States. In particular, European officials view the Inflation Reduction Act as putting their domestic companies at a disadvantage.

Addressing those concerns and understanding the intent of the law is important “so that we keep very strong ties between France, Europe and the United States,” Bruno Le Maire, the French finance minister, told Treasury Secretary Janet L. Yellen ahead of last month’s Group of 20 leaders meeting in Bali.

Much of the Europeans’ concern centers on preferential subsidies for electric vehicles that are assembled in North America and use batteries manufactured on the continent. The law also provides tax credits for cars using battery materials that are sourced domestically, or from countries with which the United States has a free-trade agreement.

European officials have been pressing the United States to make some kind of change to the law to ensure that European manufacturers can share in the same benefits the United States has awarded to Canada and Mexico.

Mr. Biden suggested on Thursday that one provision of the law, which applies to countries with which America has a free-trade agreement, like Canada and Mexico, was actually meant to include “allies” — including those without such a trade deal, like France or the European Union.

“There’s a lot we can work out,” the president said.

Some key lawmakers have expressed reluctance to make any changes. Senator Ron Wyden, the Oregon Democrat who leads the Senate Finance Committee, said that Congress had passed the law to stimulate the U.S. auto industry, create American jobs and tackle climate change at the same time.

“I have no intention of reopening it,” he said. “Congress values America’s partnership with the E.U., but that cannot mean undermining one of the signature elements of our landmark bill.”

The debate over electric vehicle subsidies will be one of the most divisive issues on the agenda as the American and European governments hold their latest set of economic meetings in a forum called the Trade and Technology Council, beginning Dec. 5 in Washington.

The United States and the European Union set up a task force in October to discuss their split over the electric vehicle provision. Both Mr. Biden and Mr. Macron said Thursday they had assigned aides to work closely on that joint effort.

European business executives say they would have preferred if those conversations had been held before the law was passed.

Markus J. Beyrer, the director general of BusinessEurope, a group representing companies in 35 European countries, said Europeans were disappointed with the policy, “which is discriminating against European production in a very important field without this having been talked about” in the Trade and Technology Council.

“We have a joint responsibility to find a solution to not allow this issue to poison the relationship,” he said.

Image

Biden administration officials have defended the law and encouraged European leaders to join the United States in passing more measures to boost their advanced manufacturing production, as part of a concerted fight against China.

U.S. officials “think there is space here for Europe and others, frankly, to take similar steps,” a senior administration official told reporters this week in a background briefing previewing Mr. Macron’s visit. The task force, the official said, allowed for conversations with Europe “to make sure that their approach and our approach ends up complementing one another, being harmonized with one another.”

“It is reasonably friendly,” Ms. Yellen said of the legislation during The New York Times’s DealBook Summit on Wednesday. “We’re highly dependent on China for most of the minerals that go into making batteries, and the objective of the Inflation Reduction Act is to have more adequate supply chains among our friends, our trading partners.”

John Podesta, a senior White House adviser on clean energy innovation and implementation, said this week that the United States was confident that the Inflation Reduction Act did not violate any World Trade Organization rules.

“We intend upon implementing these provisions and look forward to dialogue,” Mr. Podesta added. “But we think that not only will these be drivers in the U.S. economy, but ultimately these are going to have tremendous benefits across the globe as we drive down the price of clean energy and clean energy technology.”

In its discussions with the Europeans, the Biden administration has focused on the other benefits of the new climate legislation for global businesses, and on emphasizing the need for cooperation to combat climate change, people familiar with the discussions said.

Privately, American officials and business leaders have also pointed to recent situations in which the Europeans took protectionist trade stances that rankled other governments — such as the E.U.’s carbon border adjustment mechanism and a proposed digital tax.

“It’s rich that President Macron is criticizing the United States for not coordinating with Europe while Brussels has steadfastly refused to discuss a lengthy list of regulations that threaten to discriminate against American companies,” said Jake Colvin, the president of the National Foreign Trade Council, which represents major multinational businesses.

The split over the automotive industry comes as the United States is also seeking Europe’s help on limiting the kinds of advanced technology that China can access globally, especially the machinery for producing advanced semiconductors that is marketed globally by Dutch firm ASML.

Senior U.S. officials have flown to Europe in recent weeks to press E.U. officials and corporate leaders to join the United States in tightly restricting exports of semiconductor technology to China, arguing that China’s access to such technology poses a national security threat.

At her meeting with Mr. Le Maire at the Group of 20 summit in Bali last month, Ms. Yellen noted that America’s relationship with France is critical at such a pivotal time for the global economy. She said that she was open to hearing the concerns that Europeans have about the Inflation Reduction Act and trying to address them, if possible, within the limits of the law that Congress passed.

“France is America’s oldest friend and ally, and we’re looking forward to continuing to build on our very strong relationship,” Ms. Yellen said."