Trade dispute between two sides of the Atlantic

The European Union (EU)’s opposition to the US Inflation Reduction Act (IRA) has become a serious trade dispute between the two sides of the Atlantic. Although the US affirmed that its support for green industry would not aim to harm the EU, the tensions related to this issue are at risk of causing a significant rift in the alliance.
Illustrative image (Photo: Reuters)
Illustrative image (Photo: Reuters)

Passed by the US Congress in August this year, the IRA mentions tax exemptions for electric vehicles made in North America, support for the battery supply chain in the US, subsidies for companies and consumers in transition to green technology, and environmental protection. The act regulates the provision of a government tax credit of up to $7,500 for every American who purchases an electric vehicle assembled in North America.

In addition, the IRA imposes a corporate minimum tax of 15% on companies with profits greater than USD 1 billion per year. The act aims to create jobs and boost the transition to green energy; however, the EU is concerned that these new trade barriers create unfair competition, which could affect electric vehicle manufacturers in Europe.

According to the bloc's members, the 430 billion USD act includes an article of large tax exemption for the US companies which have been causing the detriment to the EU electric vehicle manufacturers, creating unfair competitive advantages for the US enterprises. Besides the EU, many other countries have shared similar concerns.

In order to appease the allies across the Atlantic, US President Joe Biden announced that the IRA is not intended to harm any US allies but to strengthen industrial supply chains with partners like Europe to overcome the vulnerability of the economy in the face of the COVID-19 pandemic and the conflict in Ukraine. According to the head of the White House, the essence of this law is to ensure that the US does not have to depend on the supply chain of any country, and hopefully Europe too.

Amid high energy and gas prices in Europe, EU said that the IRA is good for the US economy but not cooperative with European countries, so it may lose a fair playground. The subsidies to American enterprises under President Joe Biden’s initiatives are “strong attacks” on EU businesses.

Meanwhile, it is essential for Western countries to enhance close coordination in the issues of economy and trade. President of the European Commission Ursula von der Leyen called for action to address the concerns related to the IRA. She also noted that EU should create a fair playground while working with the US to solve some of the most worrying aspects of the IRA.

In addition, Chairman of the Committee on International Trade under the European Parliament Bernd Lange said that EU must swiftly file a complaint against the US with the WTO in the coming months, aiming to send a message that this law does not conform to the WTO's regulations. However, American experts affirmed that the provisions of the domestic market do not violate the regulations of the WTO, which only banned governments from implementing subsidies for exports.

According to Lange, although officials from both two sides expect to discuss and solve this problem, it is difficult to expect a solution based on negotiations because the unification of small changes in the IRA will not change the nature of the law.

If the trade tensions related by the IRA are not quickly resolved, they will affect the close cooperation between the US and its Western allies.