The focus of international trade policy is shifting. Instead of opening new markets and dismantling trade barriers, the focus is now more on climate protection, species conservation and national security issues.
Since Russia's war of aggression against Ukraine, which violates international law, and the resulting global economic effects, trade and industrial policy objectives of states are being discussed and implemented even more based on overlying geopolitical goals.
As a result of such developments and in order to mitigate the economic impact of the pandemic and the war, various programs have been established in both the U.S. and the EU to promote investment in climate-friendly technologies and to provide substantial financial incentives for this purpose. In the USA, these include the Inflation Reduction Act (IRA) and the Chips and Science Act. In the EU, these were the "Fit for 55" package, the EU Chips Act and now the Net Zero Industry Act.
Not all programs have been finalized yet, but the focus is clear: to secure the respective countries' future and competitive capabilities. However, certain provisions of the IRA, in particular special "local content" conditions, have led some European leaders to see a looming trade conflict and to call for a "Made in Europe" industrial policy. The numerous talks at the highest political level and the working group set up directly at the White House and the Berlaymont are fueling hopes that partnership solutions will be found to jointly transform industrial sites on both sides of the Atlantic. The "Clean Energy Incentives Dialogue" initiated by EU Commission President Ursula von der Leyen and U.S. President Joe Biden is also intended to play its part in preventing a subsidy race between the EU and the United States.
The IRA was also a wake-up call. It not only leads to debates in the EU about simplifying subsidy regulations but should also lead to new considerations with regard to trade agreements. After all, the debates on the design of subsidy programs show how important cooperation and coordination are between the transatlantic trade partners. In times of fragile global conditions, further integration of the two economic areas is even more important in order to remain capable of action and to jointly generate growth impulses for industry.
Another important aspect is to intensify cooperation in the definition of new standards for future technologies, especially in the field of clean technologies. Transatlantic sovereignty can be strengthened in global competition through a triad of close cooperation, deeper integration of the two regions and cooperation in setting standards.
In the political discourse, there is a desire for European sovereignty, which promises more freedom of action and independence for the EU. But complete independence is an illusion. Only cooperation among states makes real success possible in today's times – when it comes to issues like climate protection, peacekeeping, prosperity through trade, and much more. That is why the answer to the current industrial and security challenges, also with keeping China in mind, must be to think and act beyond borders in order to be able to generate added value and prosperity in global competition.
The political negotiations and the hopefully emerging compromise on the IRA, as well as the announcement by U.S. President Joe Biden and EU Commission President Ursula von der Leyen to enter into a raw materials partnership, but also the discussions on the establishment and design of a “climate club” clearly show that work should be done on a set of rules that goes beyond the deliberations of the EU-U.S. Trade and Technology Council (TTC). The establishment of the TTC and the cooperation there is to be welcomed but could not prevent the differences over the IRA. A trade agreement between the EU and the U.S. offers the opportunity to first remove trade restrictions of all kinds on industrial goods and, in principle, to significantly expand common economic strengths. A focus should be on allowing companies on both sides of the Atlantic to contribute to the successful green transformation with their innovations, rather than making it more difficult to achieve this unifying goal through trade barriers.
At the end of this year, the suspension of U.S. tariffs on EU steel and aluminum (products) and the accompanying EU countermeasures will end. A new and final agreement must be reached. An agreement should provide a secure framework and planning certainty to prevent further trade disputes and create lasting solutions. The U.S. is Germany's closest partner outside the EU, with whom we can find solutions to differences based on our shared understanding of democracy and rule of law. In a radically changing global environment, the transatlantic partners must pool their political and economic strength to compete successfully in the global marketplace.
The current global challenges and the need to adapt to new circumstances offer an opportunity to proactively shape transatlantic trade policy in the 21st century. The German government should advocate new negotiations within the EU in Brussels.
This editorial originally appeared in German on April 11, 2023, in the bpö - blog politische ökonomie by the Wirtschaftsforum der SPD e.V. here.