The EU has accused the US of breaking international trade rules with its plans to offer citizens incentives for adopting domestically-made electric vehicles and other green energy initiatives.
In an official response to president Joe Biden's Inflation Reduction Act - which features $369 billion worth of subsidies and tax credits for American producers and consumers, Brussels warned that in its current form, it could result in "reciprocal or retaliatory measures" that may lead to a transatlantic trade war.
The EU's letter, which was sent to the US Treasury, specifically highlights nine provisions that it claims breach World Trade Organization rules by discriminating against overseas companies in favor of domestic manufacturers.
These include subsidies worth up to $7,500 for consumers who purchase electric vehicles made in North America - including Canada and Mexico - that will not apply to European imports.
Incentives for domestic manufacturers of solar panels, wind turbines and clean hydrogen equipment also breach international trade rules and should be changed, the European Commission continued.
As well as causing economic damage to both the US and its closest trading partners, the rules "could also trigger a harmful global subsidy race to the bottom on key technologies and inputs for the green transition," the letter continued.
A task force of senior US and commission officials met last week to discuss the issues, with the EU stating it would prefer to come to a constructive and amicable resolution rather than turn to retaliatory tariffs or other sanctions.
EU trade commissioner Valdis Dombrovskis told CNBC: "We are currently concentrating on finding a negotiated solution. Hopefully, there is willingness from the US to address the concerns which we are having in the EU side."
US trade commissioner Katherine Tai also said in a recent interview with the Financial Times that the country is proud of the investments being made in green technology, but added she is confident that the two sides will be able to come to a deal.
