US-EU Steel Tariff Dispute Ends, Then Clashes Over Electric Vehicle Subsidies Arise

Valdis Dombrovskis, EU Executive Vice President
[Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] The United States and the European Union (EU) are showing signs of clashing over electric vehicle subsidies shortly after resolving a steel tariff dispute last month.

According to Bloomberg on the 6th (local time), Valdis Dombrovskis, the EU's Executive Vice President, sent a letter on the 3rd to the Senate Majority Leaders of both parties in the U.S. Senate, raising objections to the U.S. electric vehicle subsidy policy currently being promoted.

The U.S. government and the Democratic Party are pushing a policy that provides an additional $4,500 benefit for electric vehicles produced at unionized factories in the U.S., on top of the existing $7,500 (approximately 8.85 million KRW) tax credit per vehicle. The bill containing this policy has already passed the House and is awaiting a vote in the Senate.

Previously, Canada expressed opposition to the additional tax credit benefit, and Mexico also stated it would respond in kind. Tatiana Clouthier, Mexico's Minister of Economy, indicated that Mexico might respond to the U.S. additional electric vehicle tax credit with tariffs.

Vice President Dombrovskis also pointed out that the $4,500 additional tax credit not only violates international trade regulations but also discriminates against European automobile manufacturers, potentially causing friction between the U.S. and Europe.

In his letter, Vice President Dombrovskis stated, "The $4,500 additional tax credit causes unfair discrimination against EU automobile and parts manufacturers," adding, "We do not want new friction or new trade barriers to arise between the U.S. and the EU." He noted that the regulation fundamentally does not comply with World Trade Organization (WTO) rules and could damage the supply chains between the U.S. and the EU.

Vice President Dombrovskis also questioned whether the policy would help the U.S. government's goal of encouraging union formation at production plants.

He pointed out, "This tax credit benefit does not seem to be an effective means for additional union organization in the U.S.," and "It could rather be a discriminatory measure against consumers who purchase cars made at factories that already have unions."

The U.S. and the EU agreed last month to end the steel tariff dispute that began in 2018 during former President Donald Trump's administration due to tariffs imposed by the Trump government. However, the additional electric vehicle tax credit has emerged as a new point of contention.