EU Warns U.S. Electric-Vehicle Subsidies May Inflame Tensions

EU Warns U.S. Electric-Vehicle Subsidies May Inflame Tensions

The European Union warned U.S. congressional leaders and members of President Joe Biden’s administration that the aggressive use of electric-vehicle credits in the pending Build Back Better Act could run afoul of international trade rules and create “friction” in the transatlantic relationship. 

The EU’s trade chief, Valdis Dombrovskis, sent a letter dated Dec. 3 to officials including Senate Majority Leader Charles Schumer and Minority Leader Mitch McConnell saying that the government subsidies would discriminate against European car manufacturers, according to a copy of the letter seen by Bloomberg. 

The American plan would offer an additional $4,500 in tax credits to consumers who buy cars made by U.S. manufacturers with union-represented workers, beyond an initial $7,500 that at first will apply to vehicles regardless of where they are made and five years later will apply only to those made in the U.S. Canada has spoken out against the subsidies and Mexico has threatened to retaliate. 

The tax credits would “result in unjustified discrimination against EU car and car component manufacturers,” Dombrovskis said in the letter. “I very much hope that it will not lead to unnecessary friction or create new barriers in the transatlantic relationship.”

The EU is the latest in a series of key trading partners to criticize the provision, saying it would discriminate against foreign firms and hurt American workers. Mexico and Canada both said they would be ready to respond with countermeasures should the House-passed version becomes law.

Union Plants

Dombrovskis questioned whether the provision would help the administration’s ultimate goal of supporting unionization of the workers in the assembling plant.

“The proposed consumer-tax credits seem unlikely to be effective tools to achieve further labor unionization in the U.S., and could instead provide a discriminatory incentive to purchase cars from manufacturers where workers are already unionized,” the letter said.

The EU trade chief also said the proposed bill would be “fundamentally inconsistent” with World Trade Organization rules and could disrupt the transatlantic supply chain.

Dombrovkis asked the U.S. lawmakers to withdraw the parts of the legislation that he says discriminate against the EU before the Senate adopts the adopts the package.

The EU’s warning note came as the EU and the U.S. are working to ease past trade tensions in the area of civil aviation and steel and aluminum following a period of heightened conflict during former-President Donald Trump’s administration.

Electric vehicles will be one of the biggest winners of the green transition as legislators on both sides of the Atlantic are pushing for decarbonising the car industry. The European Commission proposed legislation requiring all new cars in the EU to be emissions-free by 2035. On the U.S. side, President Joe Biden wants at least half of the vehicles sold to be electric by 2030.

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