Trade Policy | The EU and the United States are on the brink of a trade war, and it threatens Finland’s position

Brussels

Will it start A trade war between Europe and the United States and a competition for who pays the best government subsidies to their companies in the name of the green transition?

The dispute over this has escalated towards the end of the year, and may be on the agenda of the EU leaders’ summit next week.

And be that as it may, once again the possibility has popped up from the EU magic box that the EU countries would use joint financing (read: joint debt) when clearing the way for their industry.

A trade war is bad news for Finland, and it would be even worse if the EU or individual member states started competing to see who can support their companies the most.

In that competition, it is difficult for small member countries to succeed. Finland already takes a strict approach to joint financial instruments.

All began in late summer, when the President of the United States Joe Biden got a massive climate package passed in the senate, which includes a total of 369 billion euros for various measures to speed up the green transition.

The list included, among other things, tax breaks for wind and solar power production, subsidies of up to 7,300 euros for electric car buyers and support for energy renovations.

Read more: 369 billion for the environment – because of Biden’s tactical choice, not even Trump could cancel the new climate package

The package of laws in question, the Inflation Reduction Act, or IRA, was initially enthusiastically received in Europe, because based on it, the United States is once again taking climate change mitigation seriously.

A closer look revealed that the legal package contains many requirements regarding the degree of domesticity and local production and content. The United States is pulling hard in the package towards home. For example, the requirement for electric car support is that the car is assembled on North American soil from parts mainly produced in North America.

Canada and Mexico qualify as production locations, Europe does not. This is unfortunate from the point of view that the United States is the most important export destination for the EU, with a share of about 18 percent.

of the EU according to the assessment, the IRA oppresses the EU car industry in particular, but also other technology related to renewable energy, such as the battery industry. According to the Commission’s assessment, the requirements regarding the degree of domesticity are against the rules of the World Trade Organization, WTO.

The dispute has been mediated between the EU and the US before the law enters into force on January 1 next year. The situation is made easier by the fact that cooperation is going better than under the previous president Donald Trump’s a period when the US would impose steel and aluminum tariffs to protect its own companies.

Transatlantic relations would not be too sensitive to be damaged by a trade war, especially now that both the United States and the EU are supporting Ukraine, which has been attacked by Russia.

The EU has gained understanding in the negotiations, but the law mentioned as Biden’s favorite child is unlikely to be substantially rewritten. The interpretations can be clarified so that EU production is not completely played out of the US green market.

in the EU has not been satisfied with just negotiating, but the union has also thought about a counter move. The big countries France and Germany have taken the initiative here.

The EU has made climate policy by drafting a huge amount of legislation and regulations. In the United States, the approach is different: there, the market is controlled by money.

President of France Emmanuel Macron has flashedthat Europe should also enact the “Buy European” law, i.e. copy the US methods and relax its state aid rules.

Macron, who recently visited the United States, did everything he could to convince Biden that the EU is serious about this.

Chairman of the Commission Ursula von der Leyen accompanied Macron last weekend. According to him, there is fierce international competition in anti-climate change technology, and the EU cannot watch from the sidelines if investments begin to flow elsewhere than Europe.

Von der Leyen may be inspired by, for example, a Swedish battery manufacturer Northvolt’s hesitation. The company is now deciding whether to locate the new plant in Germany, where energy costs are high, or whether to expand its US plant.

According to von der Leyen, the EU needs to simplify and apply the rules for state aid in a new way.

Von der Leyen also thought out loud that the EU should assess whether joint funding from the EU countries, for example a common fund, is needed for the support. In this way, it would be prevented that large member countries would not step on their smaller feet with subsidies. Not all countries have much wiggle room left in their budgets either.

On Wednesday von der Leyen said in Italy in his speech, that the EU and the United States also have common interests in the green transition, for example reducing their dependence on Chinese raw materials.

For Finland too The United States is among the most important trading partners. Those Finnish companies that already have production in North America may benefit from the IRA legislation.

Still, the trade war bubbling under the surface is unnerving in Finland as well, and it seems even more unnerving what the big EU member states come up with next and what actions they are pressuring the Commission to take.

The Treasury minister Annika Saarikko (Centre) said at the start of the week in connection with the EU meeting that it is concerned that financial incentives for companies to go green are being prepared at the EU tables.

“There are many pioneering companies in Finland and other Nordic countries that have already taken steps towards renewable energy on their own without separate subsidies. If the EU is considering similar solutions, it is important to remember fair competition in that as well.”