As the rumble of Air Force One’s engines faded away from Ireland in the early hours of Saturday, media on both sides of the Atlantic were reflecting on the significance of President Joe Biden’s extended recess. Here, the emphasis has been on warmth of kinship and community as the country celebrated the attention of a world leader. In the US, some commentary has been on the lack of political substance and the familial focus of the visit.
The international significance of the trip may have yet to play out. Trade tensions between Europe and the US have been rising as both the Ursula von der Leyen and Biden administrations respond to challenges to global supply chains.
The Ukraine war is forcing a reconsideration of hitherto acceptable dependencies on exclusive suppliers. The deteriorating relationship between China and Taiwan is likewise accelerating a re-evaluation of trade chains. Ireland plays a particularly unique role in having the ears of both Brussels and Washington, which the Biden trip has demonstrably strengthened.
The semiconductor industry is a well-analysed battleground. The US, under Donald Trump and now Biden, has dramatically restricted China’s access to western semiconductor technology in response both to China’s growing military capabilities and an urgency to strengthen the US domestic economy. The unique position of certain European sole suppliers in the global semiconductor value chain, and the vulnerability of key fabrication plants in Taiwan, have led to a realisation in Brussels of the strategic opportunities for Europe.
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A less-recognised conflict is now emerging with the transition to electric vehicles, and especially their power source. China processes almost 90 per cent of the world’s rare earth metals, and 60 per cent of lithium, a key element for vehicle batteries.
In early 2022, the US department of energy convened various industrial experts to recommend how to establish a robust and stable supply chain for lithium battery technology, as a matter of national economic security. Their report was duly published in February. It recommends a national consortium for procuring raw materials, shared commercialisation pilot projects, reform of environmental permits for mining and battery production, and substantial investment in workforce education.
American observers believe that the US is about five years behind Europe in battery manufacturing, and even more behind Asia. The report notes that, currently, US companies capture less than 30 per cent of the value of lithium battery cells sold into the rapidly growing domestic market for electric vehicles.
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Earlier this month, the US Environmental Protection Agency published a plan for two-thirds of passenger cars and a quarter of heavy trucks to be all-electric by 2032. In 2022, just 5 per cent of new cars and fewer than 2 per cent of trucks were all-electric.
The aggressive transition plan has met some strong resistance from automobile manufacturers which express concern over sourcing the raw materials for vehicle batteries. Consumer groups have pointed to an insufficient national fast-charging network for electric vehicles. The industry is, naturally, also contemplating whether the outcome of the 2024 presidential election could lead to subsequent potential policy reversal on the ambitious move to all-electric.
In the EU, there is concern that the $369 billion (€336 billion) of green subsidies in Biden’s Inflation Reduction Act will only apply to products made in the US. Manufacturing operations and human talent could be lured out of Europe, making Europe even more dependent on US-based industry.
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Under pressure from France and Germany – and their vehicle manufacturers – the commission proposed easing state aid rules to accelerate green investment. Ireland joined other smaller member states in objecting to such subsidies for the European green industry, citing to Brussels the weakening of the coveted single market. The commission has responded by enabling €225 billion of loans and €20 billion of grants for the green industry, money unspent from the post-pandemic recovery fund.
The commission has also recently announced that not more than 65 per cent of any key raw material should be sourced from a single third country. Europe should mine at least 10 per cent of critical raw materials, including lithium, copper and nickel, and recover at least 15 per cent of its needs from recycling. Raw materials handling will be deemed strategic, thus accelerating access to financing and environmental permits.
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Japan has very recently negotiated an agreement with the US to co-operate on raw materials supply, particularly for electric vehicles, which will remove import duties and enable US consumers to avail of tax credits for vehicles sourced with Japanese critical materials. The deal controversially circumvented normal congressional approval for international trade agreements.
The EU and US administrations are exploring a similar agreement but both parties are sensitive to political support and process. Irish soft power, astute political navigation and delicate compromise may be a welcome opportunity for further influence in Brussels and Washington.
