Inflation Reduction Act Raises Concerns in EU

Saying that it breaches international trade rules, the European Commission, the executive arm of the European Union, has “serious concerns” about the U.S. Inflation Reduction Act.

Primarily, the EU is worried about potential new trade barriers that will be erected against European electric vehicle producers, which could challenge European carmakers that are focusing on EVs, like Volkswagen. South Korea has also raised similar concerns.

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Approved by U.S. lawmakers in August, the massive tax, health, and climate bill includes $369 billion in spending on climate and energy policies, a record amount. The package supports U.S. battery supply chains and also contains tax credits for electric cars made in North America.

European officials are worried about “the way that the financial incentives under the Act are designed.” While they acknowledge the green ambitions associated with the package, they also list nine of the tax credit provisions that they have issues with.

The EU’s trade chief, Valdis Dombrovskis, remarked, “We have established a taskforce to deal with these issues . . . we are currently concentrating on finding a negotiated solution.”

“Hopefully, there is willingness from the U.S. to address the concerns which we are having in the EU side,” Dombrovskis continued.

However, the U.S. Treasury Secretary, Janet Yellen, said that while she had heard the concerns, there was little chance any changes to the package would be made.

Several of the 27 European finance ministers also highlighted their worries about the bill.

“We are concerned about the consequences due to the Inflation Reduction Act,” said German finance minister Christian Lindner. “Our common approach should be that value partners should stay preferred trade partners.”

Lindner, however, said he would be willing to working on a new trade deal with the U.S.: “We should be open for it, if both sides agree, but at the moment we have to analyze the Inflation Reduction Act with its consequences for our industries. And we have to inform the U.S. side about our serious concerns. I am not sure they are aware of our concerns in the way we are concerned.”

“Each minister agreed that this is a subject of concern at the European level and that we need to see what is the best response,” another EU official privy to the ministers’ discussions said under condition of anonymity.

“There is a political consensus (among the 27 ministers) that this plan threatens the European industry,” the same official added.