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Fair’s Fair: Biden Should Use the IRA’s Tax Credits to End Europe’s Targeting of U.S. Tech

Fair’s Fair: Biden Should Use the IRA’s Tax Credits to End Europe’s Targeting of U.S. Tech

March 3, 2023

Hypocrisy is no new feature in European Union (EU) trade policy. The EU portrays itself as the defender of global trade rules while simultaneously ignoring them when it suits them, especially for data and digital technologies. However, recent EU complaints about discriminatory U.S. tax credits for electric vehicles (EV) are particularly hard to stomach given its all-out effort to target U.S. tech firms and products. It’s particularly galling given EU’s tariffs on U.S. passenger vehicles are four times higher than U.S. tariffs. The Biden administration should use EV tax credits to end the farce and force the EU to treat U.S. firms as it wants its firms treated—fairly and without discrimination.

Later this week, European Commission President Ursula von der Leyen arrives in Washington to clinch a high-level agreement that will allow the EU’s EV industry to qualify for more of the Inflation Reduction Act’s (IRA) tax breaks. The EU and other foreign auto producers complain about a $7,500 consumer tax credit for EVs that requires cars to be assembled in North America to qualify. Another provision requires that a certain threshold of the critical minerals in the battery must be extracted or processed in the United States or a country with which the U.S. has a free trade agreement (which the United States and Europe do not have).

The EU’s automotive sector is central to its trade and industrial development. The EU fears the IRA EV tax credit will undermine the sector’s future in Europe. EVs are central to Europe’s role in the global competition for advanced technologies, just as AI, quantum, and other digital technologies are central to the United States’ efforts to compete. The EU is going to bat for its leading sectors like autos, and Biden shouldn’t hesitate to do the same for its own leading tech sector.

Without a hint of irony, the EU Trade Commissioner Valdis Dombrovskis stated that the EV provisions threatened to undermine progress made by the U.S.-EU Trade and Technology Council (TTC). If Europe thinks discriminatory tax credits are bad, perhaps look at French and EU cloud cybersecurity rules that wouldn’t even allow U.S. firms to manage European data as by being foreign, they wouldn’t be deemed “trusted.”

They don’t compare, yet the EU made sure the EV issue got top-of-agenda attention while the EU lives by the five D’s of dodgeball—to dodge, duck, dip, dive, and dodge—whenever anyone mentions their hypocritical treatment of U.S. tech firms. Europe talks about the importance of being treated fairly as part of a strong transatlantic alliance, but at the same time, it deploys digital sovereignty protectionism to unfairly attack U.S. technology firms by imposing restrictions on data flows, discriminatory digital taxes, protectionist technical standards, overly aggressive antitrust enforcement (and fines), and market discrimination against U.S. technology products and services.

Europe’s hypocrisy is not a bug but a feature. U.S. policymakers should recognize that the EU wants it all: access to American markets (it runs a $247 billion trade surplus with the U.S.) and other strategic help, access to Chinese investment and markets, and the ability to target American tech firms and products. This is clearly not fair, nor in the U.S. trade, economic, and security interests. The stakes are too high in the competition with China over advanced technologies to continue to let the EU slide and have it all.

The EU needs to realize that being a genuine friend comes not only with benefits but with responsibilities and the expectation that they’ll treat U.S. firms as they want their firms treated. Friends should not be subject to the current “Buy America” provisions in President Biden’s various executive orders and the IRA. Friends should be asked to participate in joint technology projects and other partnerships, including on batteries. Friends would get to cooperate on joint supply-chain initiatives.

But if the EU refuses to be truly fair, the Biden administration should instead see it more as an acquaintance than a friend, one who doesn’t get the kind of market access friends get, and there would be much less cooperation of the kind friends get. The Biden administration should use access to the IRA EV benefits as the wake-up call that its partners can no longer have it all and that there are meaningful differences between friends and acquaintances when it comes to trade and technology cooperation with the United States.

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