Green doesn’t have to mean all alone

The Inflation Reduction Act (IRA), signed into law by President Biden in August, authorizes $370 billion in subsidies to promote a clean energy transition in the United States. It also amounts to a massive use of government power to ensure that solar projects, electric vehicles and associated supply chains are not imported but built in the United States. The ostensible purpose is to block China from dominating the green energy market, but longtime U.S. allies — European nations prominent among them — stand to be disadvantaged, too. They don’t like it, and Mr. Biden got an earful about the issue from French President Emmanuel Macron during his recent state visit to Washington.

The Europeans have a point. The IRA’s signature policy element is a tax credit of up to $7,500 for purchasing new electric cars, but only vehicles assembled in North America are eligible. Thus European (and Japanese or Korean) vehicles manufactured in the United States, Canada or Mexico would qualify, but imports from their factories in, say, Stuttgart, Germany, would not. Given the size of the U.S. market, this creates a huge incentive for European companies to move factories across the Atlantic, abandoning a continent already reeling from covid-19 and the energy crisis that followed sanctions to punish Russia’s invasion of Ukraine. What’s more, the IRA’s “incentives” violate the spirit, and maybe the letter, of international trade laws the United States itself did so much to create and pledged to follow. Those rules specify that, once an exporter from a particular country has paid any tariffs it owes, the importing country has to treat the goods equally under its tax laws. The United States is more or less daring the European Union to take the issue to the World Trade Organization, knowing that litigation takes years and might never be resolved, since the organization’s appellate body lacks a quorum of judges. The United States has refused to confirm any in protest of past rulings against it. The Biden administration should try to implement the law, which takes effect Jan. 1, in such a way as to permit more European market access. There are two reasons to meet the Europeans halfway: First, if the bill’s goal is to reduce inflation and carbon emissions, more competition and consumer choice would further it. And, second, given the overriding need to maintain a united political front against the Russians, Europe and the United States should avoid a protracted trade battle. Still, the IRA is pretty explicit, and it’s far from clear how its provisions could be tweaked administratively — much less how that could be done in the face of inevitable opposition from U.S. industry. A likely outcome is that Europe will try to match U.S. subsidies and domestic-content rules, in a potential repeat of the dueling subsidies the two sides supplied their respective passenger aircraft makers, Airbus and Boeing.

The new threat Russia poses shows the transatlantic partners how much they still need each other. And they still ask a great deal of each other: The United States is providing a disproportionate share of economic and military support to Ukraine, while European businesses and households face painful economic blowback from imposing sanctions on Russia’s energy industry. These common interests and shared sacrifices could form the basis for deeper cooperation in the form of freer and mutual transatlantic market access. The United States and Europe have to move from talking about their shared values — to acting on them.