The writer is research director at the European Council on Foreign Relations and a former official in the US state department
Ursula von der Leyen, the president of the European Commission, arrives in Washington on Friday amid what seems a typical US-EU dispute. The passage in the United States of new industrial policy measures such as the Inflation Reduction Act and the Chips and Science Act has caused much gnashing of teeth in Brussels. Many Europeans feel that the US, to better arm itself in its competition with China, is taking decisions without paying much attention to European economic interests.
In fact, rather than resembling past rows over issues such as aircraft subsidies or sanitary standards, this debate is likely to follow a new rhythm for US-European economic relations. Call it “ex-post co-ordination”.
Here’s how it works. The US acts without seriously consulting its European allies. There is a predictably angry response from across the Atlantic. The US government expresses surprise and concern that allies are upset and dispatches various high-level envoys to European capitals to listen attentively to complaints and pledge to address them. The president then announces that he has heard and understood these concerns, that there is a limited amount he can do at this stage, but he will then offer some token concession. The Europeans declare themselves satisfied with their effort to get the Americans to address their issues. What no one seems to notice is that the US has in the process succeeded in getting almost everything it wants.
This is the template that the Biden administration followed during the Afghanistan withdrawal and in the Aukus debate in 2021 when the US went behind France’s back to conclude a new defence pact with Australia and the UK. And it seems to be the emerging rhythm in the reaction to the IRA and Chips act.
To see this process in action, consider in more detail the European approach to the IRA. A curious thing happened on the way to that bill passing in the US Congress. Nobody considered its impact on Europe. Despite the potentially devastating implications of the bill’s $369bn in climate subsidies on European industry, the lengthy debate over it contained barely any mention of its effect on America’s allies across the Atlantic.
Even more oddly, this lack of attention to the bill’s negative effect on European allies extended to the Europeans themselves. The Canadian government saw the dangers the bill contained and succeeded, through a concerted lobbying campaign, in getting an exception from its “Buy America” provisions. There appears to have been no similar European effort.
Once the bill had been passed, there was an outcry in various quarters in Europe, particularly France. But von der Leyen’s commission still insists that the IRA is a key contribution to the effort to combat climate change. Rather than challenge the US head-on at the World Trade Organization or otherwise seek retaliation, the European Commission has chosen to tout that the EU is already running a green subsidy programme that outpaces America’s and to seek exemptions.
“Together,” boasted von der Leyen, “the EU and the US alone are putting forward almost €1tn to accelerate the clean energy economy.” In other words, the EU doesn’t need a forceful response to the IRA; it can just boost its current green subsidies.
The US government calmly supported this co-operative response. The Biden administration has decided to “bow slightly to European pressure” and is likely to allow European companies some access to the benefits of the new legislation. Biden and von der Leyen will probably announce some such compromise on Friday.
In previous years, the US would never have considered initiatives such as the IRA without consultation, knowing that securing European partnership on geoeconomic initiatives was both necessary and non-trivial. Europeans would have participated in the early stages of formulating these policies, probably occasioning many hard negotiations and compromises.
At the moment, however, ex-post co-ordination works because the EU’s deep and growing security dependence on the US means European governments have little choice but to defer to Washington on security issues. And, from an American perspective, the increasing integration of the security and economic spheres, particularly in the struggle with China, means that nearly every issue is a security issue. The IRA, for example, is both domestic economic policy and a weapon for the US in the struggle with China. America expects Europeans to defer to it on the latter and mostly ignore the former. So far, it is working.
