There is a brewing war on trade between the United States and the European Union. Caught in the middle is the United Kingdom.
Three years ago, Britain left the EU to chart its own course, including on trade. Now it finds itself caught in the middle of two massive economies in the brewing transatlantic trade war.
On one side is the United States, whose Congress in August passed the Biden administration’s much-lauded $369 billion program of green subsidies, part of the Inflation Reduction Act (IRA).
And on the other side sits the European Union, full of fears that the new subsidy splurge in Washington will mean investments will be pulled out of Europe and into the U.S.
The EU is preparing its own retaliatory package of subsidies. Washington shows little sign of changing course. Fears of a trade war are growing fast.
The U.K. can only look on with horror as it gets caught in the middle. Britain has quietly been asking the U.S. to soften the blow to the EU. But there are few signs the softly-softly approach is producing any results.
British Trade Secretary Kemi Badenoch has for months been privately urging top U.S. officials to soften the impact of the electric vehicle subsidies on Britain by carving out exemptions. Electric vehicles are of utmost concern to the EU, fearing that the new subsidies in the U.S. will directly harm European car makers.
Britain now risks being clobbered by both sides.
Experts say it is not in the U.K.’s interest for the U.S. and EU to go down this route of a trade war. Given the U.K.’s current economic position, it cannot afford to engage in a subsidy war with both.
The British government has recently unveiled a round of fiscal belt-tightening after a market rout, following months of political turmoil.