Europe-US ties on shaky ground

With nationalism on the rise over the past decade, both sides of the Atlantic alliance have their hands full in the face of crises

By Jon Van Housen and Mariella Radaelli

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Photo: AFP
Photo: AFP

Published: Mon 31 Oct 2022, 11:06 PM

While Germany and France have been bickering again, they seem to have found some consensus in opposing an unusual foe – the United States.

During a three-hour working lunch of fish and champagne at the Elysee Palace in Paris last week, French President Emmanuel Macron and German Chancellor Olaf Scholz discussed energy, defense and the economy.

When it was over, Scholz tweeted that “Germany and France stand close together and are approaching the challenges together”.

And while they continue to differ on a range of policies, they have found something they agree on: mounting alarm over what they view as unfair competition from the US and the potential need for Europe to hit back. The two leaders are united in their irritation over a new US law that would give a tax break to electric vehicles whose components and batteries are produced in the US.

The development comes as some Republican lawmakers in the US signal that their support for Ukraine is limited. House minority leader Kevin McCarthy said Republicans are not going to “write a blank check” to Ukraine at a time of possible economic recession. His comments strike at the heart of the biggest immediate issues facing Europe today – the conflict in Ukraine and subsequent energy crisis.

After Europe came together in surprising solidarity and a united front to impose strict sanctions on Russia – and now faces the consequences of skyrocketing energy prices – would its erstwhile ally the US really dial down support for the Ukraine, and by implication support for the European Union itself?

No doubt Macron and Scholz discussed that possibility as well as the odds of Republicans taking back control of the House and Senate in next week’s mid-term elections. With Democrats and Republicans locked in what they view as an existential battle for the heart and soul of America, the needs of Europe could easily become a low priority.

With that as the backdrop, President Joe Biden’s so-called Inflation Reduction Act could make some sense as he tries to placate Americans who feel the country has lost its economic dominance. Part of the legislation mandates that US electric vehicle batteries must be made primarily in the US with US materials.

But the post-luncheon message from Macron and Scholz seems clear: If the US doesn’t scale back some of the new legislation, the EU might strike back to avoid unfair competition or losing investment, a move that could risk plunging transatlantic relations into a trade war.

Macron made the warning public in an interview with French TV. “We need a Buy European Act like the Americans. We need (subsidies) for our European manufacturers,” he said, referring to electric cars.

“You have China that is protecting its industry, the US that is protecting its industry and Europe that is an open house,” Macron said, noting that he and Scholz “have a real convergence to move forward on the topic”.

For his part, Scholz made his discomfort clear when he publicly said that Europe will have to discuss the Inflation Reduction Act with the US “in great depth”.

The meetings and statements come amid a rising sense of real dread about the future of European industry. The skyrocketing price of energy could be a fatal blow to the sector.

Among the string of stark developments is an announcement by German chemical giant BASF that will reduce its business activities and jobs in Germany. Company CEO Martin Brudermüller said soaring natural gas prices — which he said are six times those in the US — and increasing regulation are driving companies to leave the region.

German auto icon BMW earlier announced it would expand its plant in Spartanburg, South Carolina through an enormous $1.7 billion investment as it prepares to make electric cars in the US.

Not lost on European observers was the $700 million earmarked for construction of a battery manufacturing plant nearby, but BMW Chairman Oliver Zipse told English language broadcasters that it is not the result of the Inflation Reduction Act. It has more to do with logistics, he said.

“You will not fly hundreds of kilograms of batteries around the world or put them on a ship,” he said. “You’re not going to do it. You’ll localize.”

Before starting a tit-for-tat trade dispute, Scholz and Macron want to reach a negotiated solution with Washington using the new taskforce on the Inflation Reduction Act that was established during a meeting between European Commission President Ursula von der Leyen and US Deputy National Security Adviser Mike Pyle.

In a lightning-fast development by trade or diplomatic standards, it will meet via video conference this week, an urgent move that underlines the seriousness of the European push. EU trade ministers will also gather this week for an informal meeting in Prague with US trade envoy Katherine Tai scheduled to attend to discuss the tensions.

With nationalism on the rise over the past decade, both sides of the Atlantic alliance have their hands full in the face of crises that include potential energy shortages, armed conflict, the looming threat of recession, lower food production and extreme weather events due to climate change.

Maintaining civil discourse and consideration for old friends should be high priorities as countries, leaders and peoples try to overcome myriad challenges: It’s tough, but let’s tough it out together.

- Jon Van Housen and Mariella Radaelli are international veteran journalists based in Italy

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