Written by 3:28 pm Europe Economy

Worse than under Trump – Biden’s economic policy hits EU yet harder

The French Le Monde has published an article whose author argues that “for the EU economy, Biden has proved worse than Trump”. This article will look into the situation in more detail.

The US trade policy demonstrated consistent protectionism throughout the entire 19th century. It was only in the 1930s, when Franklin Roosevelt came to power, that the situation began to change. After the Second World War, the US share in global economy exceeded 50 percent. Unsurprisingly, Washington became a major proponent of “freedom of trade” in subsequent decades. Despite that, the United States did not hesitate to use its geopolitical dominance in order to exert pressure on the allies every time when the interests of American producers were in danger.

The return to the paradigm of protectionism made itself felt again after the global financial crisis broke out in 2008. Another factor that added to it was the rapid economic growth of China. When he was in office, Obama attempted to devise a policy of trade unions, covertly restricting competition in industries the US deemed particularly important. The Trump Administration felt no “remorse” about it and dealt tariff blows at both the opponents and potential allies. Besides, according to The Economist, the Republican president signed at least ten decrees encouraging state purchase contracts with American suppliers.

The defeat of Trump and the arrival of Josef Biden caused a wide-ranging relief across the EU and equally high expectations. Scared out of their wits at Trump’s rhetoric, Europeans welcomed the return of a president that represented traditional establishment. Biden announced plans to preserve America’s key foreign policy commitments. However, Washington continued to send signals that sounded alarming for Europe. For instance, future Secretary of State Anthony Blinken repeatedly warned the EU against striking an investment deal with China. After the deal in question was signed at the end of 2020, Biden’s representatives expressed deep disappointment.

Soon after inauguration, Biden issued an executive decree that introduced new restrictions for American state companies on the purchase of foreign goods and services. The US government’s annual state purchase budget is more than 600 billion dollars. Biden’s decree required state-run businesses to spend all these funds, in the first place, on “American-made” goods and services. By doing so,  the new president, who positioned  himself as Trump’s antagonist, de facto continued his predecessor’s policy. It turned out that the cooling of trans-Atlantic relations, triggered by the Trump-initiated policy of “America first”, does not scare Washington at all.

Europe is becoming increasingly aware of the fact that with the departure of Trump its struggle for maintaining “special relations” with the USA will be far from over. Instead, the European Union will have to continue to convince Washington of the importance of preserving a long-term interest in further “special” relations. As European expert Ivan Krastev pointed out a year ago, “the Americans are trying to tell Europe that the world has changed”. Thoughts about a return to the old order is all but an illusion. The European Union will have to understand that a number of things which Europeans view as their strengths are despised by the US. Such is the idea of creating a common trans-Atlantic technological space. Through Biden, the United States makes it clear that there will be nothing of the sort. “They think that there will be an American zone, a Chinese zone, and a technological wall. It will become impossible to work in two zones, there will emerge problems with standards…».

During Biden’s first visit to Europe, it became clear that “a return to the norm” the American way presupposes a change of methods, but not policies. Biden is not increasing import tariffs. He even agrees to settle American-European disputes on subsidies for aircraft builders, and on custom duties on steel and aluminum. «His strategy is oriented at industry, rather than profit, being focused on the protection of the domestic market». In the course of his election campaign, Biden pledged to change foreign policy in such a way that it would “yield more benefit for American workers”.

In general, in the opinion of Le Monde, Biden has returned to the policy of not just protectionism, but nationalism – in diversity. In place of Trump’s slogan “We will make America great again”, Biden put forward a comprehensive strategy – “To return American productions home”. The Biden Administration allocates 280 billion dollars for subsidizing micro-electronics industry, another 370 billion to other industries as part of the so-called law on inflation reduction (Inflation Reduction Act, IRA). What is worrying for Europe is that “America, which has, for so many years, been warning the world against protectionism, is now supporting it. The country has come to a consensus that the time has come to repatriate the strategic chains of creating added value”. Meanwhile, the EU, which has lost the bulk of production facilities, has now no idea how to respond to the unexpected move of its overseas partner.

Officially, the Inflation Reduction Act, adopted in August, is designed to allocate hundreds of billions of dollars’ worth subsidies for encouraging decarbonization of US economy. The European Union has for years urged the United States to speed up the implementation of measures to counteract negative climatic changes. However, the scope of “green” measures by the Biden Administration, just as their implementation, sent European officials and industrialists into shock. Western observers have started talking about the threat of a new trade war, despite official statements about “stronger consolidation of the West” amid the Ukrainian crisis.   

In November, the French Le Figaro cited Thierry Breton, Commissioner for Internal Market of the EU, who criticized “the giant subsidies worth 367 billion dollars which have nothing to do with what we are settling in Europe”. According to the EU official, lying behind the White House initiatives is the granting of competitive advantages to US companies. Paris was among the first to protest. French Minister of Economy Bruno Le Maire pointed out that Biden’s economic policy may aggravate “technological, industrial and economic backwardness” of Europeans, who are lagging behind the USA and China. This “gives a free hand” to the world’s top two economics.  

The lion’s share of subsidies that the Biden Administration is planning to allocate will be channeled to companies whose businesses are located in either in the USA, or in Canada and Mexico. The suppliers of “green” products which are manufactured on the American territory have the right to expect tax exemptions the size of which could reach several dozen percent of the retail price. The imported products, produced in the EU, will not have such benefits. EU leadership representatives maintain that these so-called “support measures” are openly at odds with the principles of international trade enshrined in the WTO documents. The US is even ready to admit that the EU’s outcry is far from ungrounded. However, first of all, Washington says, this was the only way for such a law to secure the approval of the Congress, bogged down in political scandal. And, secondly, nothing can stop Europeans from filing a complaint with the WTO. But the trick is that Biden, like Trump, is blocking the appointment of new members to arbitrary organs of the World Trade Organization under the pretext that there is a need to “reform” the entire architecture of international trade.  

IRA is just one of the latest instances in a myriad of growing economic discords between the USA and the EU. This year saw a more intense battle between American and European weapons manufacturers for new contracts for Old World armies. Officials in Brussels have been taking measures to protect the EU production sector, the share of which on the EU internal market has dropped to 40 percent. If this battle is to see noticeable results, it is essential to restrict the presence of American military suppliers on the European market. These suppliers receive substantial direct and indirect subsidies from Washington. However, financial assistance resources from the EU are understandably limited. Besides, many EU members who are also members of NATO consider purchases of American weapons as investments in additional military and political guarantees from the USA.

America is providing itself with unilateral economic advantages even through a sanction-based policy. After the escalation in Ukraine hit a new level, at the end of February, European political circles have been enthusiastic about all Biden’s initiatives on anti-Russian sanctions. Washington has been relentlessly enhancing its rhetoric about the need to “contain Russia”, making the EU intensify sanctions against Moscow. However, new restrictions on the supplies of raw materials and trade with Russia inflict tangible damage on Old World producers, many of whom include the key competitors of American companies. At present, EU countries have to buy more and more of the costly liquefied natural gas of the USA, instead of a considerably cheaper analogue from Russia. As a result, amid the soaring costs, there have been regular reports on the transfer of European productions to the USA.  

After the victory of Biden, partners and satellites thought that the words of the new president about “the return of America to its allied commitments” will be followed by moves which will, at least, ease the numerous economic penalties which the Trump Administration slapped on countries of Europe and Asia. However, the two years of Biden’s presidency have demonstrated that the Democratic president too is focused exclusively on measures to stimulate the American economy.  

Once the coronavirus pandemic has retreated, the time has come to restore the American economy and combat the slipping-from-control inflation. Amid the decreasing ratings of Biden and losses of the lower house of the Congress in midterm elections, the White House cannot afford measures that would run counter to the interests of strengthening national competitiveness. The “struggle against China” agenda implies re-industrialization of America. Also, plans to carry out a rapid decarbonization of national economy call for a change of the technological paradigm in many sectors of the economy.

Despite the defeat of Trump in the last elections, his profit-oriented policy continues to enjoy the support of nearly 50% of American voters.  Isolationist moods are also gaining strength in the Establishment. Fairly popular is the belief about the oncoming transformation of the USA into the world’s only power with “a huge and growing” internal market, and financial opportunities that make it possible to maintain global military presence. In this model, the future of Europe is seen as a steady decline, due to economic problems, the growing debt burden, chronic unemployment amid the ageing population, and an increasing inequality. One of the foreseen consequences is an outbreak of nationalism and protectionism. According to this viewpoint, America is looking ahead.

Biden has been successfully securing unilateral advantages for his country, playing on domestic fears and the yearslong European beliefs. On behalf of the present president, the American Establishment makes it clear that the attempts to deal with it on an equal footing are perceived as an encroachment upon the interests of the USA. The stakes for the EU are becoming ever higher: every time, after yielding to pressure from Washington, Europeans risk irreversibly losing their position as one of the world’s top economies.  

 From our partner International Affairs

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