Europe is seriously preparing to respond to the US on January 1 to the entry into force of the US inflation-cutting law, measures Europeans are considering could lead to a transatlantic trade war, warns Politico. Europe in general and Germany in particular is “disappointed that Washington is not offering a peace deal”.

“Europe’s fears stem from a $369 billion US package of subsidies and tax breaks to support green business in the US, which comes into force on January 1,” the paper wrote.

In August, US President Joe Biden signed into law the Inflation Reduction Act, which provides tax cuts, energy incentives for businesses opening in the US.

Politico notes that “the problem for Europeans is that Washington’s scheme will encourage companies to shift investment out of Europe and encourage customers to ‘buy American’ when it comes to buying electric cars – something that infuriates big EU carmakers such as France and Germany.”

Germany is “in a state of open panic” as several of its leading companies are winding down domestic operations to invest elsewhere amid rising energy prices.

“However, a truce seems unlikely. If this spat gets out of hand now, it will lead to a trade war that will terrify beleaguered Europeans,” the publication said.

Possible steps being considered in Europe in response to the US law could be “largely symbolic” protests at the WTO. But “the clash could easily return to the tit-for-tat tariff battles of former US President Donald Trump’s era,” the paper said.

In Europe, too, instead of an open tariff war with the US, the option of “breaking the classic set of free trade rules and playing its own game with Washington” is increasingly being discussed. This involves state investment in European industry to actively develop such sectors as the production of solar panels, batteries, intensify the development of hydrogen technologies, the paper writes.

While France was previously the leading proponent of strengthening European industry with public funds, now “senior officials in Berlin say they are increasingly leaning towards French thinking, unless negotiations with the US result in a last-minute surprise decision.”

“Biden’s time for a truce, which looks increasingly unlikely, is running out,” Politico stresses.

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