The EU Pot Calling the US Kettle Black on the IRA

You would think from all the uproar coming from across the Atlantic that the United States had completely cut off the EU economy. Sundry EU voices are protesting that the United States has turned protectionist, especially through the recently passed Inflation Reduction Act (IRA) that includes “Buy American” provisions. How dare the United States do this to us is the inflamed narrative.

In a recent speech, EU president Von der Leyen stated, “there is a risk that the Inflation Reduction Act can lead to unfair competition. Three aspects are particularly worrying: First of all, the ‘Buy American’ logic that underpins large parts of the IRA. Second, the tax breaks, that could lead to discrimination. And third, the production subsidies, that could disadvantage European companies. We need to address these issues. We need to give our answer, our European IRA.” Likewise, French President Macron raised the issue with President Biden and implied that the EU should not support a joint EU-US trade agreement. France has even proposed a “Buy European Act.”

But hold on a minute, not so fast. Time for a bit of reality. If the EU is the free trader and the United States the protectionist, why is the EU running an estimated $247 billion trade surplus with America? Moreover, in contrast to popular belief, the EU economy is more concentrated in advanced industries like biopharma, machinery, transport, and IT services than the U.S. economy. Indeed, as a share of GDP, Europe has 15 percent more of advanced industry output than the United States.

And when it comes to government procurement, it is ironic that the EU is complaining because data from the GAO suggests that the EU uses government procurement to discriminate against US firms. Their report estimates the EU governments awarded $300 million to U.S. firms in government procurement in 2015, while the United States awarded $2.8 billion in procurement awards to EU firms, a level more than nine times higher. (See figure 2 from the GAO report). This does not necessarily mean that the EU is intentionally discriminating against EU firms. But it does suggest that the EU is getting the better end of the bargain. 

And, of course, on top of all of this is the EU’s “digital sovereignty” efforts intended to limit U.S. tech company sales to Europe and unfairly advantage their own players

So much for the notion that the EU is playing fair and the United States is protectionist. The proof, as they say, is in the pudding.

So, when Europe gets around to fixing its own trade and procurement imbalances with the United States and ends its discriminatory policies, then the Biden administration should talk. In the meantime, the Biden administration needs to stop being defensive in the face of EU complaints and counter with its own narrative that demonstrates the EU’s protectionist performance.