When he talks about the transatlantic relationship, German Economy Minister Robert Habeck likes to recount a conversation he had last year with U.S. Treasury Secretary Janet Yellen, after the Inflation Reduction Act (IRA) was unveiled.
According to his telling, Habeck pointed out to Yellen on a teleconference that the U.S. legislation would create huge problems for European carmakers by shutting them out of a massive subsidy scheme for electric vehicles. “I will never forget the silence on the other side of the telephone,” Habeck recalled during a speech in Berlin last month. “Then she was very direct and said, ‘Well, I think we forgot you.’”
U.S. President Joe Biden entered the White House in 2021 promising a new approach to China, based on robust outreach to U.S. allies across the globe. A landmark agreement for Australia to acquire nuclear-powered submarines, the historic Camp David summit in August with the leaders of Japan and South Korea, and a lavish state visit held for Indian Prime Minister Narendra Modi in June, which yielded cooperation agreements on defense and technology, have demonstrated that, when it comes to America’s partners in Asia, Biden has largely delivered. But as Habeck’s story makes clear, the results with Europe have been less than stellar.
On the positive side, the United States and Europe have set aside Trump-era trade irritants, from steel and aluminum tariffs to a long-running Airbus-Boeing subsidy dispute. They have reached an agreement on transatlantic data flows and set up new structured dialogues focused on China as well as trade and technology challenges.
In European Commission President Ursula von der Leyen, the Biden team has found an ally in its push to rewrite the rules of economic engagement with China. Von der Leyen, with a landmark China speech in March and an economic security strategy that she unveiled three months later, has tried to build a bridge between Brussels and Washington. The Biden administration has adopted her language on “de-risking” from China, distancing itself from the idea of a more far-reaching “decoupling” that had never had any support in Europe. When von der Leyen travels to Washington this week for a U.S.-EU summit with Biden, the two sides could announce a transatlantic deal on critical raw materials that, from a European perspective, would take some of the sting out of the IRA.
But the reality is that the transatlantic consensus on China—and the trade, technology, climate, and security issues at the heart of this discussion—remains fragile nearly three years into Biden’s term. The French have yet to fully recover from the Australia-U.S.-U.K. (AUKUS) submarine deal, which torpedoed their own defense agreement with Canberra and undermined their strategy for the Indo-Pacific region. And Europe is still smarting from the Biden administration’s campaign to pressure the Netherlands into restricting the sale of advanced chip equipment to China, a result that exposed Europe’s export control policies as flawed and fragmented. The IRA, meanwhile, remains a major bone of contention in the big European capitals, which view it, more than a year after its unveiling, as a slap in Europe’s face and a violation of World Trade Organization (WTO) rules.
Crucially, neither German Chancellor Olaf Scholz nor French President Emmanuel Macron appear ready to jump on the von der Leyen bandwagon. They are pushing back against core tenets of her de-risking strategy, notably her plans to restrict European corporate investments in China in a narrow set of sensitive sectors, from advanced semiconductors and artificial intelligence to quantum computing and biotechnologies.
French officials are still seething about a joint statement that was put out by Biden and von der Leyen in early March, during her last visit to Washington, in which she committed Europe to upgrading its export control policies and pursuing a U.S.-style outbound regime. “She seems to believe that she has powers that she doesn’t have,” a senior French government official told me recently.
At the U.S.-EU summit on Oct. 20, the two sides are expected to fall short of their ambitions to deliver a pioneering deal that would simultaneously reduce carbon emissions and tackle unfair trade practices by China in the steel and aluminum sector. The two sides have been working on the pact since late 2021, when they agreed to temporarily suspend Trump-era tariffs in the sector, as well as EU countermeasures targeting a range of U.S. products from Harley-Davidson motorcycles to Kentucky bourbon and Levi’s jeans. The struggle to deliver a deal that would definitively remove the threat of tariffs underscores how far apart the United States and Europe remain on climate, trade, and China policy.
This is a worrying state of affairs. Closer alignment between the United States and Europe on China will be essential to developing an effective response to Beijing’s growing authoritarianism at home and assertiveness abroad. If the U.S. and Europe can’t develop common answers to the challenges posed by China, transatlantic tensions are likely to increase over time. It is especially unsettling when one considers that Biden may be the last U.S. president for whom the transatlantic relationship is a top priority. If the Biden team can’t forge a consensus with Europe, who will?
In truth, both Washington and the big European capitals deserve a share of the blame. The Biden administration has scored a series of own goals with Europe by failing to take into account the interests of its allies as it pressed ahead with AUKUS and the IRA. It has stepped up its game over the past year, conducting extensive outreach in Europe on export controls and its outbound investment plans. But some senior members of the administration remain skeptical about whether more consultation with European capitals will lead to better outcomes. “Europe is criticizing us for an industrial policy that is designed to save our democracy,” one senior administration official told me. “At the same time, they have given China a free pass.” Macron’s trip to China in April, when he appeared to blame the United States for tensions over Taiwan, was ammunition for those in Washington who believe Europe is not worth the blood, sweat, and tears.
Europe, on the other hand, has failed to define its own red lines for economic engagement with China, leaving it reactive, defensive, and incapable of speaking with Washington at eye level on the trade and technology challenges that the U.S. cares about most. Von der Leyen is trying to correct that but encountering forceful resistance. It will be interesting to watch how Berlin responds to the Commission’s decision to launch an anti-subsidy investigation into electric vehicle exports from China. Will Scholz flinch in the face of the retaliation threat from Beijing, as his predecessor, Angela Merkel, did a decade ago with the solar industry?
Habeck acknowledged in his speech in Berlin that Europeans were still coming to grips with the fact that China, not Europe, was now the defining relationship for the United States. “The IRA was not directed against Germany or Europe,” he said. “They just didn’t think about Europe. They thought about China.” No matter how unpleasant it is, Europe must accept this new reality and draw the consequences.
Germany, the European country that will be most affected by these changes, will have to point the way forward, instead of clinging to the crumbling world of the post-Cold War era, when globalization was in full throttle and geopolitics an afterthought. Since Scholz’s bold Zeitenwende speech, days after Russia’s invasion of Ukraine, there has been too little of this long-term strategic vision coming out of Berlin. France has attempted to fill the void. But its goal of transforming Europe into a separate pole of power, independent of the United States and China, is, for now, a far-off dream that lacks support in northern and eastern Europe. The war in Ukraine has been a horrible advertisement for strategic autonomy.
Europeans are right to be concerned about the possibility of Donald Trump returning to the White House in 2025. They would suffer more than most from such a scenario. But they shouldn’t use the specter of Trump as an excuse not to lean forward with the Biden administration. What does Europe want to do with Biden if he wins a second term? That is the question that Europe must answer. The clock is ticking.
