France plays bad cop as transatlantic trade tensions mount – POLITICO

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PARIS — US President Joe Biden must beware; France resumes its traditional role as Europe’s troublemaker on the transatlantic trade front.

It seemed as if the bad blood between Brussels and Washington on Biden’s watch was waning. Facing a common enemy in China, the EU and the US reached a truce last year on the tariffs former President Donald Trump had imposed on European steel and aluminum. Over the course of this year, Russia’s war on Ukraine meant America and Europe had to form a united front, at least politically.

However, cracks are now starting to appear again. The EU is furious that the US is pouring subsidies into its homegrown electric car industry. Europe accuses Washington of protectionism and now threatens to erect its own defenses.

Unsurprisingly, French President Emmanuel Macron is leading the attack. “The Americans are buying American and are pursuing a very aggressive state aid strategy. The Chinese are closing their market. We cannot be the only area, the most virtuous in terms of climate, that believes that there is no European preference,” Macron told the French daily Les Echos.

He raised the bar, calling on Brussels to support consumers and businesses buying electric cars produced in the EU, rather than those from outside the bloc.

There are good reasons why Europeans are concerned about their trade balances.

The war has caused a huge terms of trade shock, with rising energy costs pushing the EU to a yawning trade deficit of 65 billion euros in August, from just 7 billion a year earlier. In one manifestation of those tensions, Europe’s growing reliance on US liquefied natural gas as a replacement for lost Russian supplies has reignited tensions.

Macron’s comments reflect the EU’s consternation over Washington’s Inflation Reduction Act, which encourages US consumers to “buy American” when buying a greener car. The EU argues that requiring that car to be assembled in North America and containing a battery with a certain percentage of local content discriminates against the EU and other trading partners.

The European Commission hopes to convince Washington to find a diplomatic compromise for European car manufacturers and their suppliers. If not, the EU has no choice but to challenge Washington at the World Trade Organization, EU officials and diplomats told POLITICO — even if another transatlantic trade war is the last thing both sides want to spend their time and money on.

Macron’s comments “are clearly a reaction against the Inflation Reduction Act,” noted Elvire Fabry, a trade policy expert at the Institut Jacques Delors in Paris. “Macron plays the role of the bad cop, compared to the European Commission, which gave Washington some political leeway to make adjustments,” she noted.

‘American rule’

EU commission hopes to find diplomatic compromise with US for European car makers and their suppliers after Inflation Reduction Act pushes US consumers to buy green cars in America | Ludovic Marin/AFP via Getty Images

France has traditionally been the bloc’s most outspoken country when it came to confronting Washington over a wide variety of trade dossiers. For example, Paris played a key role in ending a transatlantic trade agreement between the EU and the US (the so-called “TTIP”). The digital tax angered US Big Tech and sparked a trade war with the Trump administration.

More recently, during its rotating Council of the EU presidency, Paris focused on trade defense measures, which will give Brussels the power to retaliate against unilateral trade measures, including from the US.

New tensions are bad news for the upcoming Trade and Tech Council meeting in early December, which has so far struggled to demonstrate that it is more than a glorified talk shop.

France will not be left alone in a potential trade war against electric cars. According to Fabry, these tensions will bring Paris and Berlin closer together, as the German auto industry is also particularly affected by the US measures.

But the ‘Buy American’ approach is not the only point of contention. The fact that Europe is increasingly dependent on gas imports from the US has raised European discontent to a higher level.

Although gas import prices fell in September from their record highs in August, they were still more than 2.5 times higher than a year ago. And taking into account increased purchase volumes, the French bill for LNG imports increased more than tenfold in August, year over year, by one estimate.

Economy and Finance Minister Bruno Le Maire warned last week that Russia’s war against Ukraine must not lead to “American economic domination and a weakening of Europe”. Le Maire criticized the US for selling LNG to Europe “at four times the price at which it sells it to its own companies”, and called on Brussels to take action for a “more balanced economic relationship” between the two continents.

The same concern is shared by some Commission officials, POLITICO has learned, but also among French industrialists.

It is “hardly disputable” that the US has had some economic benefits from the war in Ukraine and suffered less than Europe from its economic consequences, said Bernard Spitz, head of international and European affairs at French business lobby Medef.

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