The conflict between the United States and the EU over discriminatory electric car subsidies in the $369 billion American "Inflation Reduction" Act has been settled in principle. The EU Commission and the US government have agreed on a regulation that also allows European manufacturers free access to subsidies. EU Commission President Ursula von der Leyen announced a corresponding agreement in principle on Friday afternoon after her meeting with US President Joe Biden at the White House. In a joint statement released after the meeting between the two, it said they intended to immediately enter into negotiations on a "Critical Mineral Agreement". This is to be anchored later by the G-7 states.

Hendrik Kafsack

Economic correspondent in Brussels.

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Winand von Petersdorff-Campen

Economic correspondent in Washington.

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Majid Sattar

Political correspondent for North America based in Washington.

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Brussels and Washington are seeking a bilateral trade agreement for critical raw materials. This allows the US administration to classify the EU as a trading partner. The EU consistently points out that its own support rules do not disadvantage foreign producers. In essence, it is about a clause in the "Inflation Reduction Act" (IRA) that only grants buyers full subsidies for electric cars if 40 percent (later 80 percent) of critical materials in the traction battery initially come from the United States – or a country with which they have a trade agreement. These are Canada and Mexico, but not the EU. Biden said before the conversation in the Oval Office that they wanted to ensure supply chains for America and Europe. The US Treasury Department had shown the way for a solution when it made it clear that the term free trade agreement is not defined in the law.

Washington could fix such a commodity agreement by executive order of the president, the EU member states would have to ratify it. The procedure would have the advantage of leaving out Congress by criticizing a "watering down" of the IRA requirements. The negotiations between the Commission and the US administration on the exemption for the EU, which had been going on since last year, were therefore also conducted in the utmost discretion. Similar agreements are imminent with Japan and the UK.

At the end of last year, the EU and the US had already agreed on another exemption from the IRA requirements for the automotive industry. It stipulates that the rules on the share of local production for electric vehicles do not apply to leased vehicles. German car manufacturers in particular benefit from this. The share of leased vehicles in the total car market in the USA is traditionally just under a quarter. According to Commission estimates, however, it is between 50 and 60 percent for exports by German car manufacturers, and in individual cases even up to 80 percent.

Ukraine war and China also under discussion

According to official statements, the talks between von der Leyen and Biden should also serve the purpose of preventing a subsidy race between the two economic blocs. How this is to be done in detail, however, is unclear. This week, Volkswagen put plans for a battery factory in the EU up for discussion because of the attractive American subsidy package, which amounts to around ten billion dollars. Now the group wants to wait to see whether the EU can keep up before it makes its choice of location.

The Commission President and Biden also spoke about the war in Ukraine in the approximately one-and-a-half-hour conversation. Von der Leyen thanked the host before the meeting in the Oval Office for America's enormous help in ending its own dependence on Russian fossil fuels. In supporting Kiev, Europe and America are close partners. The president praised the EU for its role in implementing sanctions against Russia, which Washington and Brussels closely coordinated, and for providing assistance to Kiev. As in his talks with German Chancellor Olaf Scholz last week in Washington, the President addressed not only the problem of sanctions evasion by third countries, especially in Central Asia and the Caucasus, but also the renewed concern that China could support Russia directly with weapons.

Jake Sullivan, Biden's national security adviser, had recently said, referring to intelligence, that Beijing has not yet supplied weapons to Moscow. But we know that the Chinese government does not rule this out. Dual-use goods, such as drones, which can be used both for civilian and military purposes, also pose a problem. Washington has announced a sharp response in the form of sanctions in the event that Beijing supports Moscow militarily. In Brussels, it is emphasized that they are basically of the same opinion or that there are no major differences in the approach. Scholz had also indicated in Washington that he would support sanctions in the case of Chinese arms deliveries. But he refrained from public threats.

Putin's war against Ukraine has meant that the differences between America and the EU over the West's China policy could be bridged to some extent. Before the Russian invasion, key EU states, especially Germany, were skeptical of Washington's harsher tone against Beijing. In the meantime, despite great economic interdependencies, the challenge posed by the authoritarian regime is also seen in Europe. Von der Leyen recently said that relations with Beijing are about focusing on "de-risking", not "decoupling", i.e. reducing dependencies, but not cutting trade relations.