The EU-US relations have been strained after the US decided to subsidise with 7,500 dollars the purchase of an electric car on the condition that the basic parts of the vehicle such as the battery and the assembly have been done within borders.

In fact, for the third time since its establishment, the Trade and Technology Council (TTC) between the EU and the US was convened in Washington at a higher level.

Economic Commissioner and Commission Executive Vice-President Valdis Dombrovskis, Commissioner for Competition and Digital Economy Margrethe Vestager, US Secretary of State Anthony Blinken, and Trade Secretary Gina Raimondo participated in the consultations at the Trade and Technology Council (TTC) between the EU and the US convened in Washington. For four hours the two delegations, according to DW, discussed a number of burning issues, most importantly the new US “Inflation reduction Act” (IRA), which comes into effect on January 1 and has already caused a stir in Europe.

$7,500 in tax credits

The new legislation establishes tax credits of up to $7,500 for the purchase of an electric car in the US, provided the vehicle’s key parts (such as the battery) are US-made and assembly is also done within the border.

It is obvious that with this law the US government wants to boost the production of “green” vehicles and the domestic auto industry while reducing the US’s dependence on raw materials and suppliers from China. In total over the next ten years, investments of 370 billion dollars in the “green economy” are foreseen.

However, French President Emmanuel Macron, during his recent visit to the White House, spoke of an “extremely aggressive” US subsidy policy, which, as he warned, the law could harm transatlantic relations. Both Macron himself and top EU officials see a risk of confrontation or even a trade war if similar tax incentives are not provided for vehicles not entirely made in the US. According to Commissioner Dombrovskis, “the IRA Act contains many elements which constituted discrimination against European companies exporting to the USA and making it difficult to compete fairly with American products in third countries. We expect European businesses to receive the same treatment as American businesses and their exports to Europe.”

Strong criticism of the new American legislation is also expressed in the German financial magazine Handelsblatt by BMW’s Chief Executive Oliver Zipse, which produces vehicles for the American market at its plant in North Carolina. “We cannot build electric cars using exclusively American materials and ignoring all other regions of the world,” says Zipse.

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