EU USA

EU-U.S. Transatlantic Relations: Navigating Uncertain Times

May 4, 2023

The United States and the European Union (EU) have enjoyed a long-term strategic political, economic and trade partnership for many decades. However, the last few years have been challenging for several reasons and it’s evident on both sides of the Atlantic that these two need to strengthen their dialogue and cooperation if they want to keep their strategic relationship alive and well functioning.

In summer 2022, President Biden signed the Inflation Reduction Act (IRA) into law. This move, much anticipated and welcomed for several reasons, however, was met with a heavy dose of criticism in Brussels and other EU capitals, where many expressed concerns over how some of its provisions will negatively impact the EU businesses and consequently severely complicate the EU-U.S. strategic relationship.

Inflation Act: Its Impact on the EU-U.S. Relations and EU’s Reaction

 One of the most important rules of the U.S. IRA is that it provides $369 billion subsidies for spending on climate and energy policies.

Specifically, the Inflation Act offers tax credit for US consumers to purchase new and used electric vehicles. However, to be eligible for this tax credit, consumers must purchase cars assembled in North America from producers that source the materials from local North American markets or countries with which the United States has a trade agreement.

The limitation of subsides to U.S.-centric businesses triggered a heavy criticism in the EU. Many believe that it puts the EU businesses at a disadvantage and will eventually result in an outflow of clean and green industries from the EU to the United States. The concern here is that the Inflation Act will ultimately help make the United States a center of clean technologies, a development that would be welcomed in any other circumstances, but that it will happen at the EU’s expense.

Others go even further and accuse Washington of effectively launching an economic attack on the EU industries, which have already been struggling due to the COVID-19 pandemic and the war in Ukraine, and starting what essentially looks like a trade war.

After an initial shock, EU leaders started developing counteracting measures such as implementing the European Green Deal. This act proposes, among other issues, a significant relaxation of the EU’s state aid rules regarding investment in clean and green technologies. Other initiatives also surfaced, including: President Macron’s idea to have a “Buy European Act,” which would put European companies at an advantage in public procurement processes.

Uncertain Transatlantic Future in Need of More Partnership and Inclusivity

Unquestionably, the past few years have been trying for the U.S.-EU strategic partnership.

Firstly, the EU and the United States failed to reach an agreement on a much-anticipated Transatlantic Trade and Investment Partnership (TTIP). The negotiations, which started in 2013, failed in 2016 due to unreconcilable differences over several issues. Inability to reach consensus and sign a comprehensive trade and investment agreement was seen as a major failure on both sides of the Atlantic as well as globally. In a certain way, it sent a signal that these two might not be such strategic and close partners as they like to claim. Secondly, the Trump presidency brought additional tensions while putting a further strain on the transatlantic dialogue.

Hence, when Joe Biden was selected as the next US president in November 2020, it seemed that the EU and US would eventually enter a new, more constructive, era of their strategic partnership. Undeniably, things seemed to be on a track for a while, but the Inflation Act changed, yet again, unfavorably the course of this relationship.

Over the past few months, the political leadership of both, the EU and the United States, have frantically made a few attempts to help ease transatlantic tensions. Most notably, president Macron visited Washington in December 2022 and Ursula von der Leyen visited in March 2023. Both held joint conferences with President Biden to underline that the EU and US remain close partners and are committed to finding a feasible solution from the current impasse.

However, over six months in, there is no definitive solution on the table yet. If anything, these past few months showed that if the EU and the United States intend on maintaining their strategic partnership, they really need to strengthen their mutual dialogue and find ways for cooperation that will be tighter and more inclusive of their respective interests.

While it’s much welcomed and savvy for Americans to increase their commitment to clean and green industries, it’s puzzling to observe how it has been done. The EU, which has its own embassy in Washington, D.C., along with political representations from 27 EU member states, seemed to be blindsided by the Biden administration’s U.S.-centric provisions. And this is not a development that one would expect in the relationship that likes to be known as strategic.

With the war in Ukraine, raising competition from other aspiring global powers, looming global recession and other divergent issues the future of transatlantic relations is uncertain. While there are no major reasons to believe that there will be a serious freeze between Washington and Brussels, it is obvious that the EU and the United States struggle to find a solution that would satisfy both sides. And this lack of unity puts a serious question mark over how their strategic partnership can further develop and thrive.

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