Fears grow of EU-US trade war over electric vehicle subsidies

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Proposed subsidies in the US for domestically-made electric vehicles could lead to a trade war with the EU, it has been stated.

Concerns have been raised that the US and the EU could be heading for a full-scale trade war over protectionist measures included in president Joe Biden's flagship climate legislation.

The row centers over subsidies for electric vehicles, with the French government in particular arguing that products made in the EU should be eligible for the same kind of incentives as domestically-made vehicles in the US, the Financial Times reports.

As part of the Biden administration's Inflation Reduction Act (IRA), buyers of US-made electric cars will be able to claim a tax rebate worth up to up to $7,500 on their purchase. The EU has argued that unless these incentives are applied to imported vehicles as well, its own manufacturers stand to be at a serious disadvantage.

The French government has been especially concerned about the issue, claiming  that under the current plans, the country stands to lose €8 billion in investment as manufacturers are incentivized to shift operations to the US.

Paris also pointed out that currently, buyers of electric cars in France are able to claim a subsidy of up to €7,000 regardless of where the vehicles are made, and called on the US to reciprocate this arrangement.

President Emmanual Macron has also called for the EU to do more to protect its own manufacturing sector. In a TV interview last week, he said: "We need a 'Buy European Act' like the Americans ... You have China that is protecting its industry, the US that is protecting its industry, and Europe that is an open house.”

France aso called on the European Commission to work on a response to the IRA, with potential next steps for Brussels including filing a complaint at the World Trade Organization, retaliatory tariffs, or pushing for an exemption that would allow products made in the EU to be part of the US rebate scheme.

Many of Europe's largest car manufacturers are investing heavily in electric vehicle production ahead of a 2035 deadline for ending petrol and diesel-powered vehicle sales in the EU. However, with many of the production facilities for these based in Europe, this could leave them uncompetitive in the American market unless the subsidies issue is resolved.