Brexit Britain stuck in the middle as US and EU go to war over trade

LONDON — Three years after leaving the EU to chart its own course, Britain finds itself caught between two economic behemoths in a brewing transatlantic trade war.

In one corner is the United States, whose Congress passed the Biden administration’s vaunted $369 billion green grant program in August, part of the Inflation Reduction Act (IRA). ).

In the opposite corner is the European Union, which fears that Washington’s subsidy madness could divert investment – ​​especially in electric vehicles – from Europe, hitting automakers hard.

The EU is preparing its own retaliatory grant package; Washington shows few signs of changing course. Fears of a trade war are growing rapidly.

Now sitting squarely outside the ring, the UK can only watch in horror and quietly ask Washington to soften the blow. But there are few signs that the soft-soft approach is bearing fruit. Britain now risks being crushed by both sides.

“It is not in the UK’s interest for the US and the EU to go down this road,” said Sam Lowe, a partner at Flint Global and an expert on UK and EU trade policy. EU. “Given the current economic situation in the UK, it cannot really afford to engage in a subsidy war with the two.” The UK government has just unleashed a series of budget cuts after a market rout following months of political turmoil.

For iconic British car brands, the row over the Biden administration’s IRA has real costs.

The US is the second largest destination for British-made vehicles after the EU, and the automotive sector is one of the UK’s biggest exporters of goods.

Manufacturers like Jaguar Land Rover have publicly warned of the “very serious challenges” posed by the new US law and its electric vehicle tax credit scheme aimed at boosting US industry.

Kemi on the case

For months, UK Trade Secretary Kemi Badenoch has been privately urging senior US officials to soften the impact of electric vehicle subsidies on Britain by providing exemptions, UK officials said.

When Commerce Secretary Gina Raimondo visited London in early October, Badenoch urged her to rethink strategy. Britain’s trade chief brought the same message to Washington in a series of private meetings earlier this month, including a meeting with Deputy Treasury Secretary Wally Adeyemo.

Badenoch “raised this issue on many levels,” said a UK Department for International Trade official, citing conversations with US Ambassador to Britain Jane Hartley, with Secretary Raimondo, “and with members of the Biden administration and senior officials from both parties.”

The Cabinet Minister has also spoken publicly, telling the pro-free market Cato Institute in Washington earlier this month that “substantial new tax credits for electric cars not only prohibit UK-made vehicles United from the US market, but also affect vehicles made in the US by UK manufacturers.”

Badenoch’s comments echo concerns raised by British motoring lobby group, the Society of Motor Manufacturers and Traders (SMMT), and Jaguar Land Rover, in comments filed with the US Treasury Department.

The SMMT warned that Biden’s green vehicle package has several “worrying elements that risk creating an uneven competitive environment, with UK-based manufacturers and suppliers potentially penalized.” The lobby group is targeting the Green Vehicle Building Credit System requirement in North America, with deep subsidies available only if critical minerals come from the United States or a U.S. ally.

In response to Washington’s plans, the EU is preparing what could be billions in subsidies for its own industries affected by the US law, which also offers tax breaks to boost US green businesses such as solar panel makers. Britain risks being stuck in both markets, while having no say in what response Brussels will decide.

Protectionism affecting like-minded allies ‘is not the answer to the geopolitical challenges we face’, UK Commerce Department official warned, adding ‘there is a serious risk’ the law will disrupt chains “vital” global supply of batteries and electric vehicles .

The conversations Badenoch had this month in Washington were “reassuring,” the official added. “But it’s up to them to address and find solutions.”

“A ton of work to do”

Still, others believe Badenoch will struggle to convince his colleagues in the United States – now cooling off over a much-vaunted bilateral trade deal – to act. “The United States is focused on the impact of each of its policies on the United Kingdom as a minimum,” admitted a US-based representative of a large business group.

While Britain and the US are “very close allies”, they added, those in Washington “just don’t really see the UK as an attractive trading partner and market at the moment”. . The United States is more focused, they noted, on resisting China, meaning Badenoch has “a ton of work to do” to get the administration to soften the IRA.

Nonetheless, the United States is still working on how its law will actually be implemented, the entrepreneur said, and is assembling a task force on the IRA’s impact on trade allies. This has the potential, they added, to ‘alleviate many concerns emanating from the UK’

Late on Tuesday evening, the SMMT called on the UK government to provide increased domestic support to the sector as it prepares to increase its own production of electric vehicles. The group wants an extension after April of the internal support for the energy costs of companies; a boost to public investment in green energy sources; and faster national deployment of charging infrastructure and staff training.

In the meantime, Britain’s options appear limited.

The UK “could consider legal action” and take the US to the World Trade Organization or challenge the EU through the provisions of the post-Brexit trade and cooperation agreement, said Lowe of Flint consultancy. “But – to be frank – none of them care what we have to say.”

Anna Jerzewska, trade adviser and associate researcher at the UK’s Trade Policy Observatory, suggested it is perhaps more important to move forward “with your own domestic policy and efforts to support strategic industries than to complain about foreign subsidy programs. But she noted that after a “chaotic” political period, Britain “is likely to take longer to respond to external changes and challenges”.

And in truth, Britain “cannot afford to subsidize the US and the EU,” said David Henig, a trade expert at the European Center for International Political Economy think tank.

Outside the EU, Britain could work to rally allies such as Japan and South Korea who are also unhappy with the Biden administration’s protectionist measures, he noted. “But I don’t think we’re in that position,” Henig said, as it would take a concerted diplomatic effort, and the UK car industry “should be well positioned” in the first place, not struggling as it is. . . He predicted that lobbying from London to Washington and Brussels “will get nowhere”.