Under the Joe Biden administration, Europe and the US shared the common aim of fighting climate change and de-risking from China. Biden rejoined the Paris climate agreement. He wielded tariffs and subsidies to sell climate policies to American voters as rebuilding US industry. Europe pursued an ambitious green policy and became wary of Beijing’s attempt to dominate green industries.
Admittedly, the allies embraced different approaches. Europe generally put more emphasis on sticks, through regulations and carbon pricing. Americans offered carrots, with tax breaks and incentives. These differences limited transatlantic coordination.
But Donald Trump’s victory darkens the outlook for even this limited rapprochement. Upon moving into the White House, Trump repealed regulations aimed at promoting electric vehicles, opened vast areas of public land and federal waters for oil drilling and mining, and ordered the withdrawal of the US from the Paris Agreement.
Climate change will cease to be a shared positive-sum transatlantic objective and become a zero-sum competitiveness game. Even if a transatlantic trade war is avoided, additional US tariffs on China threaten to divert Chinese exports, swamping Europe.
Going forward, the objective will be to manage divergence. The Trump administration will object to Europe’s Carbon Border Adjustment Mechanism (CBAM). Europe will resist US infractions of World Trade Organization (WTO) rules.
As the allies squabble, China could end up the winner. Beijing has won remarkable success in building successful clean tech industries. China dominates in the markets not only for solar panels and batteries but also for the materials needed to produce them, including lithium, cobalt, and polysilicon.
The Biden Strategy
The Biden administration aimed to decarbonize the US economy and build a domestic clean tech manufacturing base. Climate policy is a partisan issue in the US, explaining the emphasis on neutering it politically.
Biden’s headline initiative, the Inflation Reduction Act (IRA), provides subsidies for the production and deployment of clean tech. The IRA stimulates demand by offering tax rebates on solar panels, wind turbines, and electric vehicles. It supports supply through subsidies to produce batteries, electric vehicles, wind turbines, and solar panels. Since the IRA subsidies are uncapped, and contingent on take-up, the final cost is unknown, but could be between $570 billion and $1.2 trillion.
The huge sums have generated transatlantic trade tension. IRA subsidies not only exclude producers that use non-American battery tech components, but also require the use of US inputs. WTO rules prohibit such local content requirements, which discriminate not just against Chinese but also against European producers.
Biden proved a tariff warrior. He quadrupled tariffs on Chinese electric vehicles to 100%, tripled them on steel and aluminum, and doubled them on chips and solar cells. It remains unclear whether IRA subsidies will compensate for the crackdown on Chinese green tech that has increased the cost and length of the US energy transition. From a political standpoint, stark price increases hurt consumers, exacerbating existing discontent with high rates of inflation.
A key question is whether the green subsidies will survive the Trump era. Some 78% of IRA-related investments are made in Republican-held congressional districts. Whether this bolstered support for IRA subsidies remains to be seen. About 30% of Republicans believe the IRA has had a negative impact on them, according to an October poll. The IRA targets affluent consumers and businesses and lacks popular support from those most hurt by the cost-of-living crisis.
The Biden administration’s approach of fighting fire with fire — embracing Chinese-inspired industrial policies — created anxiety that Europe might have to navigate a global subsidy race, which it could not participate in given legal and fiscal constraints. US subsidies and tariffs violated WTO rules, undermining an international institution core to European values. President Trump looks set to double down on many of these policies, making the United States an unreliable partner, and even an economic threat, to Europe.
The European Union’s Strategy
Carbon pricing represents the preeminent European policy tool for the green transition. Europe charges a fee for carbon dioxide (CO2) emissions. Currently, the price stands around $76 per ton of CO2 and covers emissions from sectors such as electricity and heat generation, carbon-intensive industries, and transport (maritime and aviation). Starting in 2027, a new carbon pricing system will be introduced to cover buildings, road transport, and other industries. For a few polluting and politically sensitive sectors such as agriculture, discussions remain ongoing.
Brussels has complemented carbon pricing with subsidy programs to support European producers in some green or strategic industries. European subsidies also support energy-efficient home renovations and encourage the use of electric vehicles. But European industrial subsidies remain much smaller than the US’ IRA subsidies, confirming the contrast between Biden’s IRA and Europe’s emphasis on carbon pricing.
Europe’s trade policy balances respect for WTO rules and ensuring fair market access. The European CBAM sets a price for imports of certain goods for which European production is part of the carbon pricing system. It aims to limit unfair competition from non-European producers free of a carbon price and avoid “carbon leakage,” meaning businesses moving abroad and exporting “carbon-tax-free” to Europe. Many governments, including the US, see CBAM as a form of green protectionism.
To respect WTO rules, the European Union (EU) backed away from punitive tariffs singling out China. In October 2024, the European Commission imposed duties ranging from 18% to 45% on Chinese electric vehicles. In contrast to the much higher 100% US tariffs, these duties counter market-distorting subsidies rather than wielding a blunt instrument designed to stop a geopolitical rival.
After the IRA passed, European policymakers engaged in soul-searching, about their own industrial subsidies. Without competing subsidies, Europeans feared that the IRA could divert investments across the Atlantic. Critics feared subsidies would be a waste of money and undermine Europe’s single market. National European governments have different abilities to support their domestic industries, raising fears that large countries such as Germany will outspend smaller neighbors.
Despite misgivings, Europe moved forward, allowing limited industrial subsidies to promote European clean tech production.
What Can Be Salvaged?
During the past four years, transatlantic tensions over China and climate flared. The Biden administration criticized the EU as too timid in dealing with China, while the EU criticized US violations of WTO rules. Yet, the US and Europe have developed a shared language of “de-risking” on China.
Trade conflicts worsened. Washington claimed CBAM hurt US exports. Europe complained about “national security” tariffs on European steel and aluminum exports. Europeans remained frustrated by what they considered a lack of seriousness in a US climate policy that prioritizes subsidies serving US industrial interests. They lamented US failure to consider potent instruments such as carbon pricing.
These conflicts will become secondary if, as looks probable, the Trump administration ceases to pursue a climate policy. Although it remains to be seen how much Trump will unwind IRA climate subsidies, those carried over will no longer be justified by climate objectives. Gone is a common transatlantic vision for a positive-sum green transition.
An aggressive US strategy against China could damage European clean tech industries. A new US-Sino trade war risks rerouting Chinese products into Europe, forcing Brussels to strengthen its trade defenses. Although Europe accepts de-risking, it aims to embrace cooperation and an open trade policy, while tackling unfair Chinese subsidies.
At best, the allies can hope to mitigate the risk of trade wars and collateral damage on climate policy.
Optimists point to areas of common commercial interest, such as the need to diversify critical raw materials. Some transatlantic climate diplomacy could take place among Europe and US states. The US Climate Alliance regroups 24 states representing 60% of US gross domestic product. The states are committed to the Paris Agreement and have engaged in ambitious climate policies, which employ tools similar to that of Europe’s emission trading systems. Although states have limited impact on US national policy, they could prove valuable partners.
The outlook for cooperation on climate looks dark. At best, we can hope for disaster mitigation. At worst, prepare for confrontation.
Niclas Poitiers is a research fellow at the Brussels-based economics think tank Bruegel. He researches topics in international trade, global supply chains, and industrial policy. Niclas writes extensively on the geopolitical aspects of international trade and how shifts in global politics reshape supply chains. He holds a Ph.D. in economics from Universitat de Barcelona and was a visiting scholar at Northwestern University.
Pauline Weil researches high-tech trade and agriculture policy. She has worked for the think tank Bruegel, as an economist for the credit insurer Coface, and for the Directorate-General for International Partnerships in the Directorate for Asia at the European Commission on development aid policy.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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