Behind the scenes, America is making a fortune off Europe’s troubles. And it cannot be a coincidence.
First, Washington pressures Europe to impose energy sanctions on Russia in retaliation for the war in Ukraine. This opens a stupendous boom for expensive U.S Liquefied Natural Gas (LNG) exports to Europe – gas previously uncompetitive due to the abundant supply of cheap Russian gas.
With the war in Ukraine, huge sums of money also begin flowing into the American defence sector, with little to zero oversight.
Then, in August 2021, U.S President Joe Biden signs into law the Inflation Reduction Act (IRA), giving protectionist subsidies and tax breaks for “green” businesses and industries in the US to the tune of $369 billion. Then comes the news that expensive gas prices and IRA subsidies is pushing European industry to move to the US.
The Mood in Brussels
In Brussels, there is panic and anger. Europe is beginning to realize its true role in the war, and it may not have much to do with saving Ukraine, but making America great again.
One senior EU official openly told Politico Europe that the US was “profiting from this war”:
“The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” the senior official said, adding that “We are really at a historic juncture,”
According to the senior EU official, public opinion was turning against both the war and the NATO alliance due to the trade disruptions from the IRA subsidies and the high energy prices. For Brussels, Biden’s green subsidies and taxes are unfair competition that will encourage business to shift operations from the EU to the US. The IRA is no less, no more a mortal threat to European industry.
“We are really at a historic juncture,” he said, adding that “America needs to realize that public opinion is shifting in many EU countries.”
The EU’s chief diplomat Josep Borrell for his part chose more diplomatic words to describe the alarm in Brussels:
“Americans — our friends — take decisions which have an economic impact on us,”
Brussels expects a growing fight over Biden’s Inflation Reduction Act (IRA), with officials already working on an emergency plan of subsidies to save European industries from collapse.
“The Inflation Reduction Act is very worrying,” said Dutch Trade Minister Liesje Schreinemacher. “The potential impact on the European economy is very big.”
“The U.S. is following a domestic agenda, which is regrettably protectionist and discriminates against U.S. allies,” said Tonino Picula, the European Parliament’s lead person on the transatlantic relationship.
Responding for the first time to Washington’s green energy subsidy scheme last Sunday, European Commission president Ursula Von Der Leyen said “The new assertive industrial policy of our competitors requires a structural answer,” adding “There is a risk that the IRA could lead to unfair competition, could close markets and fragment …critical supply chains,”
To counter the IRA, Von Der Leyen said Europe must “simplify and adapt” its rules on state aid and reassess whether “new and additional funding at the EU level” was needed.
For one EU diplomat, the IRA “changed everything” between Washington and Brussels.
“The Inflation Reduction Act has changed everything,” the diplomat said. “Is Washington still our ally or not?”
German MEP Reinhard Bütikofer spoke of a “creeping crisis of trust” in relations between Europe and the U.S.
“We are experiencing a creeping crisis of trust on trade issues in this relationship,” he said.
During his visit to the USA, he warned of a “division in the West”, French President Emmanuel macron warned of a “division in the West”, adding that the US subsidies could “destroy a lot of jobs”.
”The decisions of the last few months, especially the IRA law, are decisions that will divide the West,” Macron said.
As the EU tries to convince the US to make changes to the IRA legislation, Bernd Lange, the chair of the European Parliament’s Trade Committee, warned that it will be too late since the law comes into effect in a few weeks. He added that should the negotiations fail, the EU is likely to file a lawsuit against Washington at the World Trade Organization (WTO).
Expensive Gas, Made in the USA
Gas prices have become a major thorn in transatlantic relations. Having imposed sanctions on Russian energy at the behest of the Americans, Europe now finds itself buying gas from the US at a price almost four times as high as the same fuel costs in America.
French President, Emmanuel Macron, said high U.S. gas prices were not “friendly”.
Germany’s Federal Minister of Economy, Robert Habeck, complained about paying “moon prices” for US gas and called on Washington to show more “solidarity”.
With cheap energy prices and major tax incentives and subsidies for renewable and clean energy projects, the US is poaching key industries away from Europe. Many businesses, such as BASF, are choosing the US over Europe for new investments and relocation. More recently, chemical multinational Solvay announced it is choosing the U.S. over Europe for new investments.
More Arms Sale for the Americans
As the US calls on Europe to do more to support Ukraine with weapons, there is also anger in Brussels about how the Americans are profiting from this military aid.
After sending weapons to Ukraine, European armies are facing shortages in their own weapons stocks. This has worked to the net advantage of the U.S defence industry, which is reaping a surge in orders for American-made military equipment. According to Politico, the Pentagon is working on a plan to increase arms sales further. The U.S. has by far been the largest provider of military aid to Ukraine, with more than $15.2 billion in weapons and equipment since the start of the war.
Another EU diplomat said the Americans could reduce their gas prices, given “the money they are making on weapons”. In his words, “All this cash on gas” was a “a bit too much”.
“It’s not good, in terms of optics, to give the impression that your best ally is actually making huge profits out of your troubles,” the diplomat said.