Europe’s Response to Biden’s Mistake

The new protectionism of the U.S. threatens a pillar of European economic policy.

With a lifelong trans-Atlantic thinker in the White House and a secretary of state who grew up in France, Europe should have in Joe Biden and his administration the ideal partner in Washington. And, in fact, the massive military and financial support of the U.S. for Ukraine’s defense is a stroke of luck that cannot be overvalued in the European Union. After all, the Russian invasion of a European country is a threat to democratic Europe that Europe is hardly able to counter on its own. The harmony of the meeting between Austria’s Minister of Foreign Affairs Alexander Schallenberg and his U.S. counterpart Antony Blinken in Washington on Tuesday was not feigned.

Protectionist Wave

At the EU summit on Thursday, however, praise for America as a partner is likely to be much more muted. That meeting will deal with Europe’s response to the protectionist wave that has gripped Washington. Instead of retreating from the economic nationalism of his predecessor, Donald Trump, Biden has taken it even further, particularly with the Inflation Reduction Act and its billions of dollars’ worth of subsidies for electric vehicles, subsidies that are reserved for products “made in the USA.”

The danger of a mass exodus of corporations from Europe is probably not as great as German industry, in particular, is claiming. But behind it all is a deeper change of heart in U.S. policy that undermines the principle of open global markets and with it a pillar of Europe’s well-being. With globalization in retreat, the world is also facing the possibility of a turning point in a negative sense.

EU in a Pickle

That puts in the EU in a pretty pickle. It makes no sense to lodge a complaint with the World Trade Organization about competitive bias in the Inflation Reduction Act. The Biden administration has already paralyzed the WTO’s mechanism for settling conflicts by blocking appointments to the appellate body for obscure reasons, just as Trump did.

If the EU now hollows out its own strict aid policies to pull even with Chinese and American subsidies, it will open the door to a senseless waste of money from which it has so far managed to protect its members.

On the other hand, it is politically impossible to do nothing about it, because in most EU countries, eagerness is growing along with concern. And when it comes to accelerating climate protections in particular, temporary subsidies are unavoidable.

Desirable Developments

So far, the EU Commission has taken the best possible course with its moderate proposals. Given the lack of consensus, no major plan of action is expected from the EU summit. Two lines of attack would be desirable. Instead of loosening the reins on national assistance, the new financial support should come out of a common EU pot. Otherwise, it will set off a costly competition even within the EU that would severely disadvantage poorer member states.

In addition, the EU should offer to revive negotiations with the U.S. about the free trade agreement, the Transatlantic Trade and Investment Partnership, which failed in 2016 primarily because of European opposition. If it were in place today, the IRA would hurt less. And the Biden administration is right about one thing: When it comes to the vice of protectionism, Europe is still several miles ahead of the U.S.