After a rocky start in 2021, U.S.-European relations have since gone from strength to strength, largely thanks to the unifying effects of Russia’s war against Ukraine. In recent months, however, this key partnership has been rocked by what is viewed in Europe as a resurgence of the “America First” economic policies that so bedeviled relations during the Trump administration.
Europe’s collective ire is directed toward U.S. President Joe Biden’s massive suite of inward investment policies—specifically, the American Rescue Plan Act, the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act (IRA). Together, these programs, which provide generous investment in infrastructure, green subsidies, and related tax breaks, threaten to lure foreign investment from Europe to the United States.
While this has been welcome news to many green energy advocates in the United States and elsewhere, it has caused increasingly public rifts with Europe. Critics believe the Biden administration’s inward investments constitute a new protectionism, one designed to place the United States first and everyone else a distant second. At the Davos World Economic Forum annual meeting in January, European Commission President Ursula von der Leyen declared that “competition on net zero must be based on a level playing field,” and specifically raised concerns about both the United States’ green policy suite and China’s subsidy and restrictive market practices.
After a rocky start in 2021, U.S.-European relations have since gone from strength to strength, largely thanks to the unifying effects of Russia’s war against Ukraine. In recent months, however, this key partnership has been rocked by what is viewed in Europe as a resurgence of the “America First” economic policies that so bedeviled relations during the Trump administration.
Europe’s collective ire is directed toward U.S. President Joe Biden’s massive suite of inward investment policies—specifically, the American Rescue Plan Act, the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act (IRA). Together, these programs, which provide generous investment in infrastructure, green subsidies, and related tax breaks, threaten to lure foreign investment from Europe to the United States.
While this has been welcome news to many green energy advocates in the United States and elsewhere, it has caused increasingly public rifts with Europe. Critics believe the Biden administration’s inward investments constitute a new protectionism, one designed to place the United States first and everyone else a distant second. At the Davos World Economic Forum annual meeting in January, European Commission President Ursula von der Leyen declared that “competition on net zero must be based on a level playing field,” and specifically raised concerns about both the United States’ green policy suite and China’s subsidy and restrictive market practices.
After some internal hand-wringing over whether the goal should be to get the Biden administration to back down or instead to keep pace with U.S. initiative, Europe has begun to marshal a tit-for-tat response to challenge and counter U.S. policy efforts with its proposed Green Deal Industrial Plan. This resurgence of economic nationalism within the transatlantic relationship is what has economists such as Adam Tooze so concerned about the IRA.
If the prevailing analyses of European security experts and international economists are anything to go by, the United States and Europe appear to be heading toward yet another round of transatlantic tensions with this latest rift over green investment. But a closer examination suggests there is a real opportunity to turn this rather conventional spat into an alliance-building effort that benefits overlooked peoples and places on both side of the Atlantic.
Collectively worth some $3.8 trillion, the United States’ “doubly remarkable” plans stand out not only for the eye-watering amount of investment, but also the way in which the funds are to be invested. The funds from these plans are to be spent largely on direct investments to underdeveloped areas, as part of a “just transition” to new green technologies and industries. The IRA, for example, targets spending on communities that have been historically disproportionately affected by pollution, as well as those whose workforce would benefit from inclusion in the growing green sector of the economy, such as those with high fossil fuel employment or those with higher than average unemployment rates. As U.S. Treasury Secretary Janet Yellen said in Dearborn, Michigan, “We expect to see dollars catalyze innovative investments across cities and towns that haven’t seen such investment in years.”
The work of revitalizing the long-struggling heartland industrial regions isn’t just a U.S. project, though; rather, it’s of vital importance on both sides of the Atlantic.
As the United States makes unprecedented investments in its industrial heartland, the U.K. government has pursued its own agenda to “level up” the country’s left-behind regions. The European Union has acted similarly, seeking to improve its regional structural adjustment and cohesion policies, whose main task is to support the economic well-being of regions whose development is lagging behind. The OECD is also developing road maps and inventories on successful regional transformations to inform policy decisions in this area.
Policymakers in both Europe and North America have come to understand that, in the words of economic geography professor Andrés Rodríguez-Pose, the “revenge of the places that don’t matter” has political consequences—not just locally, but for their countries’ domestic political institutions, international relations, and place in the global economy. By supporting firms, university spinouts, and new industries in heartland areas through the IRA and related programs, the United States believes it can help rebuild local economies and possibly reduce the likelihood of political disaffection. This in turn will make the United States a better partner in the global economy and the institutions that govern it. Much the same could be said about government programs to assist post-industrial communities in France, Italy, the United Kingdom, Hungary, or Poland.
As such, debates over whether the IRA constitutes a new protectionism obscure a vital point: The economic revival of left-behind places is not a zero-sum game among allied nations. Neither is the commitment to developing new green industries and the supply chains and jobs that come with them. There is a path forward whereby the collective of democracies gets stronger both economically and politically by building new industries in underperforming regions and by working together as partners with shared democratic values. To succeed in revitalizing the industrial heartlands, the United States and Europe cannot work on the problem alone and at the expense of the other. Rather, a cooperative, transatlantic approach is essential for long-term success.
The goal here for the United States and Europe should not be to outrun each other, but to become jointly independent from supply chains originating in undemocratic regimes—and, in the process, to establish the transatlantic economic leadership of the global green transition. Viewed through this lens, and not the more typical frame of zero-sum conflict and protectionism, Europe and the United States can and should work together to make this a reality. Ironically, with its tit-for-tat response to the IRA, the European Union has inadvertently taken a first step toward the completion of a transatlantic space in which green investment in heartland manufacturing regions is prioritized.
To transform existing unilateral investments into an intentional transatlantic initiative, a few things have to happen. First, both partners need to leave behind any rhetorical hint of economic nationalism, and instead frame their respective policies as part of a joint effort to meet the challenge of climate change while prioritizing the needs of the left-behind places on both sides of the Atlantic. Second, both partners need to start talking to each other about these issues. Helpfully, a suitable institutional vehicle for this cooperation already exists: the new joint U.S.-European task force, created in the aftermath of the IRA’s passage. Third, compromise will be required. For its part, the Biden administration could send a constructive signal to its partners by eliminating domestic content provisions from the IRA and other recently approved investment programs.
Once such a space becomes a reality, it allows for “ally-shoring”—expanding co-production and strengthening supply chains with countries that share common values and beliefs in an open, rules-based trade and economic global order. The approach outlined above would open the door to market-driven ally-shoring, as firms respond to the new incentives in the transatlantic green investment space. Coordinated action by the United States and the European Union could fuel this process and encourage industry players to invest across both geographies, further strengthening the bonds of U.S.-European interdependence.
The transatlantic partnership has come a long way from the depths of despair and acrimony during the Trump years. It has proved resilient and adaptive when its core security bargain was called into question by Russian aggression. Yet the current fallout over the Biden administration’s industrial policy initiatives underscores the recurring fragility of consensus over the economic dimensions of the partnership. In every crisis, however, there is opportunity. If parties can work together and adopt a different framing, one that prioritizes common interest over competition, the conflict over the IRA could be transformed from a disturbing slide toward economic nationalism into a confident step toward a stronger alliance and greener, more equitable future for citizens on both sides of the Atlantic.