It was only a year ago that President Joe Biden stood in Brussels to announce the dawn of a new era for the world’s largest trade relationship.

Back then, there was real optimism for a grand detente after four years of strained relations between the US and the European Union under former President Donald Trump. Biden shelved Trump’s tariffs on bilateral trade worth $21.5 billion, paused an aircraft-manufacturing dispute dating to 2004, and launched talks to reduce overproduction of steel and aluminum. 

Twelve months on, US allies in the EU are citing unfairness in the Biden administration’s most recent industrial policies, including about $370 billion of clean-energy subsides in the Inflation Reduction Act.

Last week, French President Emmanuel Macron lashed out and accused the Biden administration of creating a “double standard” that’s testing the “sincerity” of the arrangement that governs the exchange of $1.1 trillion in goods and services.

Macron and other European leaders say that the law contains discriminatory subsidies for electric vehicles, renewable electricity, sustainable aviation fuel and hydrogen which could spark a subsidies race and boil over into a new transatlantic trade war. 

‘Double Standard’

Next week, US and European officials will gather for the first meeting of a newly formed task force aimed at resolving Europe’s concerns over the Inflation Reduction Act.

The meeting will provide a critical test for the durability of Biden’s transatlantic reset. Some former US and European trade officials warn that any failure to mend fences could undermine pursuit of the larger goal in the president’s strategy -- to economically isolate China.

“We’ve left out a very important component of a China strategy, which is we have to do a better job of working with our allies,” former US Trade Representative Susan Schwab said during a recent event hosted by the Washington-based Center for Strategic and International Studies. 

“You can’t be conducting a trade policy that systematically alienates all of your other trading partners and then think they’re warm and fuzzy about your China policy,” she said.

In an interview, former European Trade Commissioner Cecilia Malmstrom agreed: “This administration talks about friend-shoring and working with allies -- but they aren’t sufficiently working with allies.”

Industrial subsidies have been at the core of some of the thorniest disputes at the World Trade Organization, ranging from a case between Airbus SE and Boeing Co. to China’s massive steel and aluminum subsidies.

Decoupling ‘Impossible’

The diplomatic hiccup with Brussels comes as the Biden administration has demonstrated an unprecedented level of coordination with Europe on sanctions against Russia and in developing a joint approach to curb some of China’s worst trade abuses. 

“The Biden administration has revitalized the partnerships that frayed in recent years, confronted the non-market economic challenges posed by the PRC, and tackled supply chain vulnerabilities,” said USTR spokesman Sam Michel, using the acronym for the People’s Republic of China.

“We are also pursuing a new playbook to address the challenges of the 21st century and deliver durable, resilient and inclusive economic prosperity for all,” Michel said in an emailed statement.

Nevertheless, officials like Biden’s trade chief Katherine Tai have warned that the US and Europe’s efforts to combat the climate crisis may lead to “things that cause anxiety.”

FTA Talks Unlikely

Tai argues that the pandemic and Russia’s war have pushed the US to re-examine the utility of regional accords like the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. 

Tai has instead focused on the more technical work of harmonizing trade and technology standards among key partners in Europe and Asia via initiatives like the US-EU Trade and Technology Council and the Indo-Pacific Economic Framework. 

US clean-energy subsidies will be a key matter at the next Trade and Technology Council meeting, scheduled for Dec. 5, where European officials hope the talks can move from technical discussions to concrete deliverables. 

EU ambassadors want the Biden administration to address their concerns by the December meeting and are mulling a transatlantic initiative on sustainable trade, according to people familiar with the matter.

The success of these initiatives will depend a great deal upon whether they can provide a credible forum for resolving emerging disagreements like America’s clean energy subsidies. 

“The EU is a key supplier for 300 critical goods to the US, but that represent only 4% of total US imports, whereas with China it’s 10%,” Francoise Huang, senior economist for Asia Pacific at Allianz Trade. “Given that we have these critical dependencies in place -- there are good reasons for the US and EU to work even closer.”