It has taken grousing from our European allies to bring home to Americans the importance of Congress’s investments in green energy for our future. The dispute also showcases how much the policy winds have shifted away from the economic laissez faire of the 1980s and 1990s.
As it happens, the differences between the United States and Europe are likely to be worked out, a message that both Biden and French President Emmanuel Macron were at pains to send in their friendship-fest last week during Macron’s state visit to Washington. They competed over who could say the nicest things about the alliance between the two countries — and about democracy, liberty and justice.
But the run-up to the visit was marked by European complaints, especially from Macron and German Chancellor Olaf Scholz, about electric vehicle tax incentives in the U.S. climate law that require North American production. That sticking point, administration officials note, involves only a small share of the law’s $369 billion in clean energy investments, and Biden insisted that “tweaks” can be made to satisfy the Europeans.
Signaling that the restrictions in the bill were aimed primarily at reducing dependence on China for electric car batteries, Biden said the preferential language “just meant allies” — including, in principle, Europeans. Biden added: “We’re going to continue to create manufacturing jobs in America, but not at the expense of Europe.”
Macron returned the favor, declaring: “We want to succeed together, not against each other.”
These days, it often requires conflict to smuggle substantive news into the public conversation. When Congress passed the Inflation Reduction Act, for instance, much of the coverage focused on how small the bill was when measured against the sweeping ambitions of Biden’s original Build Back Better program.
When the Chips and Science Act made it through Congress with bipartisan support, the very fact that members of both parties agreed on the need to boost domestic tech research and the manufacturing of semiconductors undercut perceptions of its importance. For all the public obsessing about the need for cross-party cooperation, making it happen is often a death sentence when it comes to media attention.
So the dust-up with Europe over climate subsidies creates an opportunity to highlight the degree to which Biden-era government is actively pushing the economy in new directions.
“The thing people are now recognizing is that for the first time in a couple of generations, the United States has a very serious industrial strategy,” Brian Deese, director of the White House’s National Economic Council, said in an interview. The combination of clean energy incentives with the innovation investments in the chips bill “really does reposition the United States long term.”
The administration, he added, is “unapologetically centered on the idea that we want to rebuild U.S. economic resiliency, U.S. industrial capacity and economic opportunity for Americans.”
Deese acknowledges that a subsidy arms race among nations can be inefficient when what is being subsidized is widely available or easily produced. But the focus of the new investments is on areas where there are shortages (as in the case of microchips), or where the market needs to be pushed and helped along (toward green energy and electric cars).
Historically, the social democratic inclinations of European governments made them more inclined than ours toward direct interventions in their economies. This is why, Deese told me, “it surprised the world that we got there first” in the case of climate investments.
In fact, there are voices in the European Union urging it down a similar path. In an essay in September, Thierry Breton, the E.U.’s internal market commissioner, wrote of the “determination and audacity” of the Biden initiatives by way of encouraging Europe to pursue comparable methods.
The key to reducing stresses with Europe, Deese argued, is to create “appropriately harmonized subsidy regimes,” language that came remarkably close to Macron’s call during his visit “to resynchronize our approaches, our agendas.” The first nods toward that possibility will come on Monday when the United States hosts the European Union at the Trade and Technology Council meeting at the University of Maryland.
In the past, such global huddles typically focused on tearing down barriers and slashing subsidies. The fact that the dialogue now looks toward making government subsidies and incentives work better speaks to a shared urgency within democratic countries of dealing with climate change and rebuilding their industrial capacities. It’s not the Reagan-Thatcher Era anymore.