DAVOS, Switzerland – As snow falls in the Swiss mountain town of Davos, American lawmakers huddle in warm, quiet rooms, trying to assuage European concerns that the United States has not merely turned into a protectionist power.
Washington’s Inflation Reduction Act (IRA), a massive $369 billion piece of legislation packed with clean-energy incentives, has strained EU-US relations, prompting European accusations that the US is unfairly promoting its own companies to encourage local investment.
In response, the EU is looking to counter its own state-provided aid. And as the World Economic Forum hosts its annual event in Davos this week, European Commission President Ursula von der Leyen will meet with a US delegation Monday night — which includes some top members of Congress — to discuss the issue before giving a much-anticipated speech here Tuesday morning.
A mix of US senators and House members say Europe has got it all wrong. The US, he told POLITICO in several exclusive interviews on the sidelines of the elite gathering, is investing in its own energy and economic security. And a strong America means a strong ally, he argued.
Europe and Germany are “too dependent on Russian power,” said Senator Chris Coons, Democrat of Delaware, who is leading the delegation, adding, “My hope is that together we can find a way forward.” American and European leaders “need to have a conversation about the alignment of values and priorities.”
But Europe doesn’t see alignments right now – just breaks.
After a golden era of EU-US cooperation following Russia’s invasion of Ukraine — in which the two sides constructively worked together to craft complex sanctions packages against Moscow — Europe was caught off guard by American subsidy-heavy legislation. In particular, a provision to give tax breaks to electric vehicles made in North America angered Europeans – including big car producers such as France and Germany.
American lawmakers understand the criticism but believe it is misguided. Senator Joe Manchin, a centrist Democrat from West Virginia who played a key role in passing the IRA, said Europe was “extremely hypocritical” after decades of European protectionism.
Manchin told French President Emmanuel Macron on a separate occasion that the IRA could not harm Europe.
That’s the message he’s giving in Winter Wonderland.
“That bill is basically designed to strengthen the United States so that we can help our allies and friends that need it right now,” Manchin said. “And if anyone needs it, the EU needs it. And without it, we’re not going to maintain world superpower status if we’re not energy independent.”
Representative Gregory Meeks of New York, the top Democrat on the House Foreign Affairs Committee, said Europeans were still nervous despite the bipartisan message from Democrats and Republicans. They are asking whether lawmakers can still amend the legislation to allay fears that European investments will wither away. Meeks countered that “there is no perfect bill” and that it is “critically important” to secure America’s supply chain for critical semiconductors and combat climate change.
Yet how the US will tackle climate change is still a point of contention in Congress, as Manchin – who retains vast control of the Senate with a razor-thin Democratic majority – says fossil fuels are vital to the American economy.
“I told them, I told them, basically the most important thing is that you can’t eliminate your way to clean up your climate,” Manchin said outside the Hilton Garden Inn, where lawmakers are staying. “You can invent it, and that’s what we’re doing in the US.”
Van der Leyen is expected to touch on the subsidy spot in her keynote speech at the World Economic Forum on Tuesday.
He previewed last week that EU officials are focusing their attention on allowing them to benefit from US tax incentives, which currently extend to Mexico and Canada. Privately, however, EU officials admit there is minimal room for manoeuvre, given that the IRA has already passed Congress.
This week in Davos may be an opportunity for the world’s two biggest trade blocs – the EU and the United States – to try and iron out their differences. But with little room for compromise, the Atlantic between the two is as wide as ever.