EU can’t afford trade war in US subsidies clash, Vestager says

The European Union’s competition chief warned against the risk of unleashing a trade war with the US, just as Emmanuel Macron is calling for the bloc to respond to Joe Biden’s green subsidy package during a trip to Washington, DC.

Margrethe Vestager told reporters in Paris that the so-called Inflation Reduction Act could be very damaging for European businesses, as well as in other major economies, including Japan and South Korea. But she said it is an absolute priority to avoid a subsidy race and the EU is working constructively with the US to find solutions as soon as possible.

“One war at a time is what we can master,” Vestager said, noting the energy crisis in Europe sparked by Russia’s invasion of Ukraine. “We have found solutions on very difficult issues before and we should be able to do it again because I don’t think the geopolitical situation we are in allows for big democracies to have a fallout.”

Speaking from Washington, Macron said Biden’s package of subsidies to spur green investment could fragment the longtime allies. He and his government have used the spat to revive a call for “Buy European Act,” which could reserve public tender offers and subsidies for manufacturers on the continent. The idea, defended by other French presidents before him, has in the past run into opposition in Berlin and Brussels that it could unleash a trade war.

The new law wasn’t “properly coordinated with the European economies” and is leading to “the absence of a level playing field,” the French president said Thursday in an interview with ABC. 

Vestager was cautious about a buy European law, saying the EU must first properly assess the impact of US subsidies and look into how its existing measures can help counter that, including one instrument designed to ensure reciprocity when it comes to public procurement. 

“One idea is a ‘Buy European Act,’ but since no one knows what would be inside that, I have no opinion about it,” Vestager. “Since we need to take action within a reasonable timeframe, we try to see how we can best use the tools that we have.” 

The EU commissioner also said the bloc needs to recognize that Biden’s legislation is part of a shared effort to combat climate change. She added that another difficulty in determining Europe’s is a fundamental difference in models, with the US tending to steer investment via subsidies while the EU uses tax policy to shape market behavior.

“We would say tax the bad, they would say subsidize the good,” Vestager said. “This why we need a bit of facts before we can have a design that is suitable.”