General

According to Watson & Band Import and Export Data Observation, last week, the European Union made frequent statements, saying that it would take countermeasures against the US "Inflation Reduction Act", triggering speculation that "the US-Europe trade dispute may intensify". Constrained by various factors, Europe lacks confidence in its trade countermeasures against the United States, and its tough stance may be "more thunder but little rain".

On November 25 local time, the EU member states' ministerial meeting in charge of trade affairs was held in Brussels. At the meeting, EU countries expressed deep concern about the US "Inflation Reduction Act", believing that the bill may have a significant impact on the competitiveness of EU industries and investment decisions. Officials from several EU countries said on the same day that the US-EU trade dispute must be resolved as soon as possible, otherwise the EU will take countermeasures, Huacheng Import and Export Data Watch reported.

In August this year, the Biden administration of the United States signed the "Inflation Reduction Act", which intends to provide up to 369 billion US dollars in subsidies to support the production and investment of electric vehicles, key minerals, clean energy and power generation facilities. As many as 9 tax incentives in the bill are preconditions for production and sales in the United States or North America, which are suspected of constituting import substitution subsidies and trade-related investment restrictions prohibited by the WTO, and have already begun to impose restrictions on related industries. Global trade and investment have caused serious distortions, which has aroused great concern from governments and industry circles, Watson & Band Import and Export Data Observation Report.

Before this meeting of ministers of the EU member states, Europe has spoken out on this bill many times. On November 4, the EU called on the U.S. to increase the transparency of the tax credit clauses in the bill, and at the same time hoped that the U.S. would cancel the discriminatory content and production requirements in the bill. On November 7, EU Internal Market Commissioner Thierry Breton said that the bill undermined the "level playing field" between the US and Europe, and the EU would consider taking retaliatory measures. On November 22, Bruno Le Maire, French Minister of Economy, Finance and Industry, and Digital Sovereignty, and German Minister of Economics and Climate Protection Robert Habeck issued a joint statement, saying they hope to "closely coordinate Europe's response to the U.S. Inflation Reduction Act, etc." challenge".

Europe's fierce reaction is closely related to the difficult situation it faces. Against the backdrop of the ongoing crisis in Ukraine, the intensification of the energy crisis, and rising inflation, expectations of a recession in Europe are increasing. According to the European Commission's latest economic forecast report for autumn 2022, the European economy is expected to fall into recession in the fourth quarter. As a traditional ally of Europe, the United States has not only failed to provide assistance to Europe, but has continued to export natural gas to Europe at record high prices, relying on geopolitics to reap unearned and excess profits. After the introduction of the "Inflation Reduction Act", European companies have shown signs of transferring their supply chains to the United States, and the potential risk of European industries being hollowed out has been greatly magnified. Some EU officials said that the bill poses a "life-and-death challenge" to the European economy.

However, it is not easy for Europe to carry out trade countermeasures.

First of all, it is not easy to reach a consensus at the EU level. The EU has a long history of "discord between face and heart", and it takes time and effort to coordinate the positions of various countries. Right now, although Europe proposes to increase aid to the industry, they have different opinions on specific plans. France called for the establishment of the EU's "buy European" subsidy system, Germany emphasized its support for local industries but did not want the EU to fall into a trade war with the United States, and the Netherlands and Sweden warned against creating a subsidy competition or discriminatory systems that could invite retaliation from other trading partners.

Secondly, against the background of high inflation and rising expectations of economic recession, it is difficult for the already cash-strapped Europe to spend huge sums of money to subsidize enterprises. According to Huacheng Import and Export Data Observation Report, on November 23, the European Union agreed to provide 43 billion euros in supporting funds for the European "Chip Act" plan to revitalize the European semiconductor manufacturing industry, which has shrunk by 2 billion euros from the previous plan. The head of the chip manufacturer NXP Semiconductors believes that the funds allocated by the EU for the "Chip Act" are far from enough to achieve the goals it set for 2030. Some analysts pointed out that the "Chip Act" introduced by Europe after a lot of effort is still facing the problem of insufficient funds. It is really difficult for Europe to spend huge sums of money to fight a trade war with the United States.

According to Watson & Band Import and Export Data Observation Report, in the context of the ongoing crisis in Ukraine, the strong desire to strengthen strategic cooperation between the United States and Europe cannot be ignored. On October 26, the United States and the European Union established the "Inflation Reduction Act Action Group" to address related issues. Some analysts believe that this move shows that both sides hope to resolve problems through contact and cooperation and avoid escalation of conflicts. According to reports, the US-EU Trade and Technology Committee will hold a new round of meetings on December 5. Europe's frequent voices at this point in time may not be a negotiating tactic. Of course, it cannot be ruled out that the United States and Europe will use suppression of third parties as a bargaining chip during negotiations. This is something that needs to be especially vigilant.