Europe Reflects on Biden-Era IRA Amidst Trump's Industrial Policy Shift

The Facts -

The evolving dynamics of international trade and policy under the second Trump administration have sparked renewed discussions in Europe about competitiveness and industrial strategy. As memories of past trade disputes resurface, the European Union finds itself reflecting on the relative simplicity of negotiations during Biden's tenure, especially concerning the Inflation Reduction Act (IRA).

The Biden administration's industrial policy, marked by initiatives such as the Bipartisan Infrastructure Law, the IRA, and the CHIPS and Science Act, aimed to tackle climate change, enhance American manufacturing, and ensure national security against China. These efforts signaled a shift towards a "post-neoliberal" approach, rejuvenating industrial policy in the U.S. to focus not just on defense but also on broader economic goals.

Initially, Europe reacted with relief to renewed transatlantic relations, but soon, the IRA's "buy-American" provisions caused friction. French President Emmanuel Macron criticized the act as "super aggressive," raising concerns about potential impacts on European competitiveness. Efforts like a transatlantic task force began to manage these tensions, with some success, such as allowing leased European electric vehicles to qualify for tax credits, although other negotiations, like those concerning critical minerals, stalled.

In response, the EU utilized existing frameworks like the Recovery and Resilience Facility, launched the Green Industrial Deal, and relaxed state aid rules. These measures aimed to bolster European industry but also raised concerns among smaller EU states about fiscal disparities. Notably, despite disagreements, there was an appreciation for the U.S.'s proactive stance on climate change.

During the Biden years, American manufacturing was a key focus, gaining attention from both Republicans and conservative thinkers. Figures like Marco Rubio criticized the IRA and CHIPS Act but advocated for a distinct GOP-led industrial policy. As the election approached, reports highlighted the IRA's benefits for Republican districts, suggesting some Republicans might resist a full repeal despite Trump's differing views.

However, the Trump administration's priorities signal uncertain prospects for the IRA and Europe. The administration's focus on fossil fuels, marked by executive orders favoring traditional energy sources, contrasts sharply with Biden's clean energy initiatives. A swath of climate-focused programs has been halted, and although substantial IRA funding was disbursed before Trump's tenure, efforts to stall implementation are anticipated.

Europe watches cautiously as potential tariffs and U.S. resistance to EU legislation, including the AI Act and Digital Services Act, loom. Despite challenges, some avenues for cooperation remain, particularly in areas like economic security and export controls. Europe's own industrial strategy is under pressure, with firms affected by U.S. policy shifts reconsidering investments and facing market challenges.

Amidst the complexities of boosting European competitiveness, adhering to international rules, and navigating potential U.S. pushback, EU leaders might find themselves reminiscing about the comparatively manageable disputes of the Biden era. The challenges ahead underscore the need for strategic coordination and resilience in Europe’s economic policies.

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