BENGALURU, India — The Biden administration hopes to reach limited free trade deals with countries in Europe and Asia that would not require congressional approval as it seeks to ease allies’ concerns about legislation President Biden signed last year, Treasury Secretary Janet L. said in Friday Yellen.
The law, known as the Deflation Act, has shaken transatlantic ties in recent months, fueling frustration in Europe and Japan that the administration’s policies are protectionist actions that will lead to a global subsidy war.
Top European officials voiced their complaints directly to Ms. Yellen and other administration officials during meetings in Washington this month, making it clear that the issue has strained relations as the West seeks to step in to punish Russia for its war in Ukraine.
Tensions centered on $50 billion in tax credits created in the law to entice Americans to buy electric vehicles that are assembled in North America. For electric vehicles to be eligible for the full tax credit, some of the minerals used to make the batteries that power them must come from countries that have free trade agreements with the United States.
Mr Biden told French President Emmanuel Macron in December that he was open to “tweaks” to the “flaws” in the climate law that would address European concerns. A possible solution, Ms. Yellen suggested on Friday, could come in the form of new agreements that would allow Europe to meet the requirements.
The rise of electric vehicles
- Accumulation: Electric cars are usually a more climate-friendly alternative. But as they increase, their emissions savings and other environmental and safety benefits, start to wane.
- Tesla: The company will open some of its own fast chargerswhich was exclusive to its customers, to all electric vehicles by the end of next year, the Biden administration said.
- Ford: The automaker plans to build a A $3.5 billion electric vehicle battery factory in Michigan using technology licensed from a Chinese company that has become one of the most important players in the industry.
- Price drop: Faster than thought possible a few months ago, sticker prices for electric vehicles are falling closer to the point where they could be equal to this year’s petrol models.
“We also discussed the possibility of creating critical non-mineral trade agreements that would allow Europe to qualify as a free trade partner,” Yellen said on the sidelines of a meeting of Group of 20 finance ministers in India.
Getting congressional approval for these free trade deals would be difficult if the House is controlled by Republicans and some Democrats, such as Sen. Joe Manchin III of West Virginia, against European companies that benefit from U.S. tax breaks. However, the Inflation Reduction Act does not specify how a free trade agreement is defined; Ms. Yellen said she thought more limited pacts could be devised so that congressional approval would not be required.
“It would be a deal that wouldn’t require congressional approval,” Yellen said, adding that she believed such deals would be consistent with the intent Congress had when it passed the law. “I think the word ‘free trade’ was meant to mean reliable friends and partners with whom we can feel we have secure supply chains.”
US and European officials have spent many years at the negotiating table in recent decades trying to forge pacts under the Obama and Trump administrations. But despite the countries’ deep cultural and historical ties, talks have repeatedly been blocked by some thorny issues such as treatment of its agricultural sector.
Ms Yellen met on Friday with Bruno Le Maire, the French finance minister who is a vocal critic of US subsidies. At a news conference after their meeting, Mr Le Maire said Europe wanted more transparency from the United States about how the tax breaks would work. He also made it clear that Europe would increase its own subsidies to support its green energy industry.
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“The Biden administration has taken very strong steps to build its green industry by providing subsidies and tax breaks to American companies,” Mr. Le Maire said. “We are fully committed to doing the same in Europe.”
The Treasury is expected to issue guidance next month detailing how the critical minerals and batteries requirements will work in the law. Meanwhile, consumers of electric vehicles had access to a full tax credit with no resource requirements.
The prospect of the Biden administration striking trade deals that benefit other nations could spark backlash in Washington. No Republicans voted for the bill, and Mr. Manchin, who is critical to maintaining a narrow Democratic majority in the Senate, has criticized the Biden administration’s handling of the tax breaks. Many lawmakers have also refused to allow the current and previous administrations to negotiate trade pacts without the oversight or consent of Congress, which has constitutional power over trade.
Mr. Manchin said this month that Ms. Yellen was “not following the law” and accused the Treasury Department of arbitrarily deciding what kinds of vehicles can access the tax credit. In December he wrote a letter to the finance minister raised concerns that rental cars, hire vehicles and ride-sharing vehicles could receive full tax credit regardless of resource requirements and called on her to issue guidance to prevent vehicles bought for these purposes from being eligible for the tax credit.
But on Friday, Ms. Yellen said rules allowing cars from Europe, Japan and South Korea to receive subsidies if they are leased helped ease the concerns of her international counterparts, and expressed support for the provision. She also acknowledged that European countries are likely to accept more subsidies and incentives, and said the United States would not try to stand in the way.
Explaining that the law was intended to be part of the Biden administration’s approach to “friendshoring” environmental improvements, Ms. Yellen argued that the United States was not trying to harm its allies.
“We have made it clear to Europe that this is not a subsidy war,” Ms. Yellen said. “We’re not trying to steal jobs.” This is our climate plan.”
Ana Swanson contributed reporting from Washington.