‘What the hell?’ Europe chafes at America’s protectionist tilt

US President Joe Biden. (Photo: Bloomberg)
US President Joe Biden. (Photo: Bloomberg)

Summary

After the Biden administration echoes Trump’s restrictive trade views, European officials worry the U.S. isn’t what it used to be. “The honeymoon is over.”

President Biden’s 2021 declaration that “America is back" was welcomed by European officials eager to move past their trade troubles with the Trump administration.

Yet instead of reversing policies driven by Donald Trump’s protectionist view, Biden has advanced many of them. The president has kept trade barriers in place, left European companies out of subsidies designed to bolster U.S. manufacturing and surprised allies with tighter restrictions on Chinese access to American technology.

Many Europeans fear that Trump, seemingly en route to the Republican nomination, might abandon Ukraine and the North Atlantic Treaty Organization, as well as inject chaos into global trade. They have nonetheless come to believe that regardless of the winner of the expected Biden-Trump rematch, U.S. economic policies have tilted from their favor. “The honeymoon is over," one European diplomat said.

Diplomats and officials across Europe are wondering whether the bloc can rely on the U.S. to continue backing the rules-based trading system—or if they face the possibility of economic conflict between the longtime allies.

The EU has taken some steps to support its own domestic industries, relaxing some of its subsidy rules to make it easier for European governments to compete with U.S. clean-technology incentives. But EU officials still largely cling to traditional free-trade ideals, hesitant to embrace a U.S. approach they say reminds them of tactics favored by Beijing. European officials have warned Washington that U.S. moves to compete with China are creating collateral damage across the Atlantic.

“We are an old couple, and we have our issues," Olivier Becht, the French foreign trade minister at the time, told U.S. Trade Representative Katherine Tai last month during a visit to Washington, according to people familiar with the exchange. “But we should be careful to manage our trade differences."

The next U.S. president will have to navigate a surplus of thorny economic debates to keep the marriage intact. Each issue could spark diplomatic tussles, tariffs or other trade restrictions and weaken economic unity between the U.S. and Europe. Concern over Moscow’s belligerence and China’s economic might have so far made Europe reluctant to push back harder against the U.S., which is seen as the West’s strongest leader.

Senior Biden administration officials dismiss the idea that their agenda has created a rift with Europe, saying the two allies are aligned on key strategic questions. A Trump campaign spokesman didn’t respond to a request for comment.

Valdis Dombrovskis, the EU trade commissioner, said the Biden administration and EU officials have worked effectively together, including on trade spats inherited by the White House, but he had hoped for greater flexibility.

‘What the hell?’

Brendan Boyle, a Democratic congressman from Pennsylvania, attended the 70th anniversary celebration for NATO in 2019. At the party in London, he said, there was a sense that the alliance might not survive much more of then-President Trump’s criticism of the alliance, focused on the demand that Europe spend more on its own defense.

“The joke that kept getting repeated, and this was gallows humor, was, ‘Well, let’s enjoy this party because there’s a real question of whether we’ll have a 75th anniversary party,’ " Boyle said.

Biden quickly re-embraced NATO after taking office in 2021, and he cheered the expansion of the alliance after Russia’s invasion of Ukraine a year later. His commitment to European security gave leaders hope that the U.S. had pivoted.

They were disappointed to learn that in matters of international economics, Biden shared some of Trump’s worldview. The president and his advisers have cast unfettered global trade as a national-security threat, warning that it has hollowed out the U.S. industrial base, harmed American workers and allowed China to dominate important industries.

One early test for the Biden administration was how to address the tariffs Trump slapped on European steel and aluminum. The president suspended them after he took office. But he didn’t permanently end the duties on metals, imposing more modest fees that nonetheless cost European metal exporters hundreds of millions of dollars last year.

European leaders sought repeatedly to persuade Biden to kill the tariffs. In October, Ursula von der Leyen, the president of the European Commission, European Council President Charles Michel and other EU officials arrived in Washington for a summit, where they had hoped to put the issue to bed.

In talks ahead of the summit, U.S. officials had pushed for the EU to impose tariffs on Chinese metals as part of a deal, a step some Europeans worried might violate World Trade Organization rules. The night before the White House meetings, EU diplomats reviewed a proposed joint statement, which was the product of last-minute negotiations between the U.S. and the bloc’s executive arm. After review, some of the diplomats said the statement sounded like the bloc would be willing to back those tariffs as part of an eventual deal.

“There was just a barrage of member states going, ‘What the hell?’" one European diplomat said.

The final statement from the summit had just four sentences on the issue, saying the two sides would keep talking. Dombrovskis later worked with Commerce Secretary Gina Raimondo to try to blunt the impact of the remaining duties. In December, the tariff suspension was extended for another two years.

Battery power

At the same summit, the U.S. and EU also tried to move beyond simmering frustration with Biden’s Inflation Reduction Act. The legislation showered clean-energy industries with tax breaks, seeking to lure foreign companies to open factories in the U.S. and buy local materials. The provisions put the force of the American tax code behind Trump’s demands as president for companies to set up shop in the U.S.

European leaders welcomed America in the fight against climate change. But they worried the law would put their own clean-energy industries at a disadvantage and lure investment money away from the EU.

During a state dinner at the White House a few months after Biden signed the bill into law, French President Emmanuel Macron confronted Sen. Joe Manchin (D., W.Va.), the author of much of the law. “You’re hurting my country," Macron said, according to people familiar with the exchange.

Europeans didn’t like the conditions attached to a U.S. tax credit for buying a new electric vehicle: Americans can’t receive the $7,500 credit unless the car is assembled in the U.S., Mexico or Canada. Much of the car battery must also include minerals and parts from the U.S. or one of its free-trade partners, an attempt to break China’s hold over the global minerals industry.

Europe doesn’t have a free-trade agreement with the U.S., which Manchin has said he didn’t know when he wrote the provision.

Early last year, German Chancellor Olaf Scholz complained to Manchin that the U.S. subsidies hurt the German auto industry. Manchin was dismissive. On his phone, he presented a search result to the German leader that showed EU auto tariffs were higher than U.S. levies, according to a person familiar with the exchange. A German government spokesman declined to comment on the content of the conversation.

The Biden administration launched talks last year for a new trade deal on minerals that might help European battery producers qualify under the subsidy’s rules. Those conversations have since bogged down, but Biden administration officials say they have helped ease European concerns about the Inflation Reduction Act.

“Yeah, there’s a certain amount of bitching, but I think in reality what it’s done is spurred action," John Podesta, the White House official leading work on the subsidies, said in October.

U.S. and EU officials are meeting Tuesday in Washington for a gathering of the Trade and Technology Council, a forum initiated during the Biden administration to help the allies coordinate on trade, economic and technology issues. The group plans to discuss clean technology and artificial intelligence, among other topics, but no action is expected, an EU official said.

Pandora’s box

The U.S. and Europe in both Trump and Biden administrations have haggled with global leaders over international rules to prevent tax evasion that have been approved by the EU. To enforce the minimum tax on multinational firms, European countries could hit U.S. companies with new levies. Republicans in Congress are threatening to slap taxes on European companies in retaliation.

“If people go down that route, it just opens Pandora’s box," said Rep. Ron Estes (R., Kan.). He and other Republican lawmakers traveled to Paris in September to warn French finance minister Bruno Le Maire against carrying out the deal. Le Maire rescheduled the meeting and then said he couldn’t speak with the group, according to people familiar with the meeting. A spokeswoman said Le Maire was out of the country and that the GOP lawmakers met with his staff.

If the tax deal breaks down, Europeans are threatening to impose new digital-services taxes on American tech companies for work they do in the EU, a levy that has angered U.S. officials.

“We should have a credible threat on the table," said Paul Tang, a Dutch member of the European Parliament who chairs a tax committee.

On the campaign trail, Trump is floating a 10% tariff on all imports. Christine Lagarde, the head of the European Central Bank, said in a French TV interview that Trump’s re-election was “clearly a threat" to Europe, citing tariffs and the former president’s attacks on NATO.

Although the Biden administration has been protectionist and trade-skeptical, it shares an interest in addressing climate change with the EU, said Pascal Lamy, a former EU trade official who led the WTO from 2005 to 2013. Trump has threatened to scrap the Biden climate agenda.

The Biden administration also worked closely with the EU on Russian sanctions after the invasion of Ukraine and helped U.S. companies get liquefied natural gas to Europe when it faced an energy squeeze from Russia.

Many Europeans say what they most fear from a Trump election win is the possibility of the U.S. abandoning Ukraine, and Russian forces moving to their doorstep.

“A breakdown in the trans-Atlantic relationship would leave the world even more divided and strengthen the authoritarian challenge to the rules-based world order we’re seeing from Russia and, increasingly, China." said Erik Brattberg, of the Atlantic Council, a nonpartisan think tank in Washington.

Write to Andrew Duehren at andrew.duehren@wsj.com and Kim Mackrael at kim.mackrael@wsj.com

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