Analysis | Don’t Dismiss Europe’s Objection to ‘Buy American’


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Speaking ahead of his meeting with President Joe Biden on Thursday, French President Emmanuel Macron warned that US trade policy could “fragment the West.” That might sound alarmist, but he was right. Biden’s programs to subsidize clean-energy investment and high-tech manufacturing have much to recommend them — but, executed incautiously, they do pose a threat to international economic cooperation. The White House should heed Macron’s message and guard against this risk.

A big expansion of investment in clean energy is crucial. But the Inflation Reduction Act, which Biden signed into law in August, channels much of its $369 billion outlay to US producers. (For instance, electric cars made in America can get up to $7,500 in tax breaks; those made in Europe can’t.) Wherever possible, the IRA’s programs prioritize “Buy American” and, not incidentally, US union labor. The CHIPS and Science Act, meant to support domestic makers of semiconductors, is a similar case. These policies set out to tilt the playing field for international trade, putting foreign producers at a big disadvantage.

Perhaps you’re wondering why that’s such a bad thing. Isn’t Biden right to be looking out for US firms and workers, favoring them as far as possible when directing public money toward vital investments? After all, other governments can subsidize domestic producers if they wish; if they follow the US example, so much the better. This is the line Biden’s officials are taking in response to Europe’s complaints.

There are two big problems.

The first is that domestic preferences make public investment less cost-effective. Investment in clean energy matters because climate change is an existential risk, not because the US needs to push wages higher or find new jobs for pools of idle labor. (At the moment, with the Federal Reserve struggling to control inflation, those are the least of its concerns.) The faster and cheaper the transition to clean energy, the better — even if, perish the thought, it means handing foreigners some of the business.

The other problem is that protectionism sets the US at odds with its international commitments. Free-trade principles are embodied in the rules of the World Trade Organization. Governments long ago accepted that subsidies can introduce barriers to trade, and recognized their mutual interest in preventing this.

Enforcing these rules on a global basis has been difficult, to say the least. That’s partly because governments, led by the US, have let the WTO’s systems fall into disrepair. Yet outright disavowal of the common interest in liberal trade is a worrisome departure. Former President Donald Trump repudiated the idea as carelessly as you might expect. When it comes to trade, Biden seems to agree with him. If Europe responds to this new US posture with big, bold “Buy European” policies of its own, perhaps with further rounds of retaliation and counterretaliation to follow, it won’t be long before the multilateral trading system is wrecked — and the West is indeed fragmented.

What makes this all too plausible is that Biden and Macron really aren’t so far apart. Europe’s record on liberal trade outside its own market is far from impeccable. Macron might very well envy Biden’s success in indulging his protectionist instincts.

During their meeting, the presidents appeared to smooth things over. Biden conceded that the IRA has “glitches” and might need “tweaks,” though what form these could take is unclear. Better than tweaks would be for Biden to rethink his basic approach. It comes down to a simple proposition that America once championed. The US, Europe and the world as a whole would be better off — and stand a better chance of winning the fight against climate change — if liberal trade was allowed to do its job.

More From Bloomberg Opinion:

• After Scholz in China, Look Out for Macron in America: Lionel Laurent

• Paris Faces an Even Darker Winter Than Berlin: Javier Blas

• The US and UK Should Be Welcoming Talent, Not Driving It Away: Mihir Sharma

The Editors are members of the Bloomberg Opinion editorial board.

More stories like this are available on bloomberg.com/opinion



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