German finance minister warns of US trade war

German Finance Minister Christian Lindner warned Saturday over a brewing trade war between Europe and the United States concerning Washington's multi-billion dollar climate protection and inflation package.

Smoother transatlantic ties since President Joe Biden succeeded Donald Trump have hit a stumbling block over the Inflation Reduction Act (IRA), which was passed by the US Congress in August.

What did Lindner say?

"The USA is our partner of shared values, but at the same time there is an enormously protectionist economic policy," he told the Welt am Sonntag newspaper in comments released ahead of the print publication.

That is why the federal government must represent German interests in Washington and point out the negative consequences for our country, he added.

Lindner said that the German economy, unlike France's, is closely linked to the US market. He was referring to the US being a huge market for German automobiles, while French carmakers do not export there.

"That's why Germany can't have any interest in a trade war but has to rely on economic diplomacy."

Lindner's remarks follow a call earlier this week by German Economy Minister Robert Habeck for a "robust" response by Brussels to the new US subsidies.

What is the Inflation Reduction Act (IRA)?

The IRA provides $370 billion (€357 billion) for climate protection and energy security, including subsidies for electric cars, batteries and renewable energy projects that are Made in the US.

The bill gives tax credits for each eligible renewable energy component produced in a US factory and a further 30% tax credit on the cost of new or upgraded factories that build green components.

Only countries that have signed a free trade deal with the US, like Canada and Mexico, can benefit from the subsidies.

Why has the IRA got the EU worried?

The subsidies have received sharp criticism from EU-based business leaders and politicians as putting European firms at a disadvantage.

EU leaders say that €200 billion ($207 billion) out of the total is tied to provisions for domestic US manufacturing that potentially violate World Trade Organization (WTO) rules.

They note how EU state aid rules prevent EU countries from offering as generous tax breaks as the US to companies looking to set up factories.

The EU is not Washington's only ally frustrated at the new subsidies. South Korea has also raised concerns that its carmakers will not be eligible for the US tax breaks.

Biden appeases Macron over IRA 'glitches'

During a visit to the United States this week, French President Emmanuel Macron described Washington's new tax breaks as "super aggressive" and warned that the package would "divide the West."

Biden acknowledged that there were "glitches" in the IRA which favors American-made climate technology, adding "there are tweaks we can make" to satisfy allies, he said.

Despite the conciliatory words, several Democratic lawmakers said they have no plans to revisit the legislation, which passed after more than a year of negotiations without any Republican support.

However, a French Finance Ministry source said Thursday that the White House could use executive orders in order to give European allies the same level of exemptions as other allies.

The German government said this week it was keen to forge an EU-US treaty to eliminate industrial tariffs, which it said would avoid a bidding war on subsidies and protective tariffs.

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mm/wmr (AFP, dpa, Reuters)