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As the EU discusses its reaction to the US Inflation Reduction Act, it has to keep in mind its position in the struggle between the US and China.

When Commission President Ursula von der Leyen announced the ‘Green Deal Industrial Plan’ at the World Economic Forum (WEF) in Davos this week, her choice of words was interesting.

After months of Commission officials and member states crying foul over the discriminatory nature of the subsidies in the US Inflation Reduction Act, von der Leyen only mentioned that the act “raised a number of concerns in terms of some of the targeted incentives for companies,” but otherwise focused on how the EU and the US could “work together” and “jointly benefit” from their collaboration.

Towards the end of her speech, her vocabulary changed distinctively as she took aim at China. “We must respond more robustly,” she said, lamenting that China used unfair trade practices and that it “dominates” some essential sectors.

She vowed to use “all our tools to deal with unfair practices.” Touting the EU’s new foreign subsidies regulation, von der Leyen promised, “we will not hesitate to open investigations if we consider that our procurement or other markets are being distorted by such subsidies.”

Trade expert David Kleimann, a visiting fellow at the economic policy thinktank Bruegel, told EURACTIV that “in her speech, you could have exchanged the word China for the US, and it would have been equally true.”

But why, then, all this waxing about cooperation with the US while insisting on a combative stance against China?

“It does not seem to be a time to antagonise the US for security reasons,” Kleimann said, referring to the European dependence on US leadership in reacting to the Russian invasion of Ukraine.

The Commission president is incentivised to remain on the good side of the US administration. And this increasingly means showing or at least feigning, her toughness towards China.

Tobias Gehrke, geoeconomics expert at the European Council on Foreign Relations (ECFR), points to the US motivation behind the bill to curb inflation.

“The US economic strategy has been adjusted from the top down,” he told EURACTIV, arguing that national security and, therefore, the perceived threat from China were on top of the priority pyramid.

From this point of view, a tougher stance on China could make sense for an EU that tries to get the US to be less discriminatory against European industry.

In a blog post with ECFR-colleague Majda Ruge, Gehrke recently argued for a “united front” that the EU and the US could build against China.

According to him, the EU is currently pursuing a two-sided strategy. On the one hand, the EU threatens the US that the inflation bill actually makes it more likely for the EU to be pushed more closely to China, an argument that Trade Commissioner Valdis Dombrovskis recently made.

On the other hand, there are von der Leyen’s remarks that criticise China for its vast subsidisation and focus on the need of “de-risking” European supply chains from too much dependence on China.

Trade expert Kleimann, meanwhile, sees risks in such a strategy.

“Hardening on China to assuage the US would be a big mistake,” he said, warning that the US had different interests from the EU, as evidenced by the fact that EU interests were not really taken into consideration when the inflation reduction act was decided.

“The US is becoming an actor that is beginning to be a problem on a par with China,” he told EURACTIV.

“The EU has to think about policies that make it much more autonomous.”

Source: Euractiv.com