Washington Insider: New US, EU Tariff Fight

Amid continuing suggestions that trade talks with China are going well, the New York Times is reporting this week that the U.S. and the EU “are preparing to impose tit-for-tat tariffs on each other’s products.” The report calls this development the latest escalation in a 14-year fight over government aid given to Boeing and European rival Airbus. President Trump tweeted that the WTO found that “European Union subsidies to Airbus adversely impacted the United States which will now put Tariffs on $11 Billion of EU products!” on Tuesday morning. The NYT report said that the office of the U.S. Trade Representative (USTR) said on Monday that it was preparing a list of European products to tax as retaliation for European subsidies to Airbus, which the WTO ruled illegal in 2018. In response, the EU countered that it was also readying a list of tariffs to counter American subsidies to Boeing. The Times notes that the current moves come amid tense trade relations between the United States and Europe, “which are engaged in a battle of tariffs after the president’s decision last year to tax European steel and aluminum.” The administration has repeatedly threatened to impose tariffs on European cars and car parts if it does not agree to better trade terms for American products – and Europe has said it will retaliate on American goods if the U.S. follows through on that threat. This increase in tensions stems from a dispute that began in 2004 related to government subsidies that Europe provides to Airbus, the Times said. Then, last May, the WTO concluded that Airbus had received illegal funding for several of its aircraft models so the U.S. requested authority to impose retaliatory tariffs of $11.2 billion per year. Now, the two sides are awaiting a decision on the level of tariffs that the United States will be authorized to levy on the European Union. In preparation for that decision, which is expected this summer, the U.S. said Monday night that it was beginning to identify European products to tax. The initial list would cover $11 billion of trade in products including airplanes, cheese, fish, wine, clothing, nails, pipes and clocks — the same dollar amount of harm that USTR estimated European subsidies cause each year. Robert Lighthizer, the U.S. Trade Representative said that, “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.” The European Commission indicated on Tuesday that it considers the $11 billion in retaliatory measures to be overblown and not justified by any findings by WTO. It said it will ask WTO arbitrators to authorize retaliatory measures aimed at Boeing tax breaks in Washington State and incentives in South Carolina “that amounted to subsidies." For its part, Airbus called the American tariff announcement “totally unjustified” and said that the European Union would take “far larger countermeasures against the U.S.” The European Commission also has begun drawing up a list of products that would be covered by retaliatory tariffs, but is awaiting a WTO decision before specifying which products would be targeted and how much trade they would encompass. The U.S. arguments at the WTO have centered on billions of dollars of “launch aid” that the EU has given Airbus to develop new products. The U.S. contends that such aid gave Airbus an unfair advantage, allowing it to gain market share in Europe, Australia, China, South Korea and elsewhere at Boeing’s expense. European criticism of the American aviation sector has mostly focused on government research contracts, but also tax breaks at the federal, state and local levels. While the subsidy dispute predates the president’s trade war by many years the conflict has recently taken on some of the same tone that has characterized relations between the United States and Europe during the last two years, including reciprocal threats, radically different interpretations of the same facts, and an undercurrent of hostility. The two governments announced plans in July to negotiate an agreement that would reduce tariffs and other barriers to trade on both sides of the Atlantic but have since disputed exactly what would be included in the agreement. Trump and his advisers have fiercely criticized the WTO for infringing on trade decisions that they insist should be the purview of the United States and for failing to police unfair behavior by China. However, they also have been quick to publicize the organization’s decisions when it finds in their favor. In its statement Monday, the administration emphasized that its latest measures against the European Union would comply with the rules of the WTO. And President Trump also cited the organization in his tweet supporting the tariffs. So, the political fights over U.S. economic and trade policy appear to continue for the foreseeable future, and to reach well beyond China. And, they likely will involve agriculture to an important extent as subsequent rounds of retaliations are imposed—and they make the fight to approve the “new NAFTA” increasingly important for producers to watch, Washington Insider believes.