The United States and the European Union are about to escalate a massive trade dispute — a move which could lead to billions in tariffs and higher prices for consumers on everything from cheese to olives.
For roughly 14 years, the political bloc and America have fought over subsidies to aviation giants Boeing (a US company) and Airbus (a European company). In 2004, Washington accused four European countries of providing illegal subsidies to Airbus, which in turn would allow the company to sell their products at a lower price point. (In a free market, at least in theory, a company shouldn’t receive government assistance to help it compete with others.)
In 2005, Airbus retaliated by saying that Boeing had received nearly $20 billion in public subsidies over a period of two decades.
The two companies have since filed appeals and new complaints to the World Trade Organization (WTO), which effectively serves as an international Supreme Court for trade. The dispute has turned into a huge fight, in which both sides claim they’ve been harmed purposefully.
“It’s kids in the sandbox hitting each other with shovels,” says Marie Kasperek, an expert on transatlantic business at the Atlantic Council, a think tank in Washington, DC.
All of which brings us to Tuesday morning, and President Donald Trump’s seemingly out-of-the-blue tweet.
The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!— Donald J. Trump (@realDonaldTrump) April 9, 2019
Here’s what’s going on: In May, the WTO ruled that Airbus had indeed received illegal subsidies from European nations. That gives the US the right to impose tariffs on the EU as a way to recoup economic losses. The global body will rule this summer on just how many tariffs the US can impose.
That didn’t stop the Trump administration from proposing about $11 billion in tariffs on Monday night, which would target products such as Swiss and Roquefort cheeses, olives, and various jams. “This case has been in litigation for 14 years, and the time has come for action,” Robert Lighthizer, the US trade representative, said in a Monday statement. Trump simply amplified that message via tweet the following morning.
But wait, there’s more.
The EU is also planning to impose its own set of tariffs on the US after the WTO ruled in March that Boeing received illegal tax breaks, thereby giving it an economic advantage. The bloc “is starting preparations so that [it] can promptly take action based on the arbitrator’s decision on retaliation rights in this case,” an EU spokesperson said on Tuesday. It seems the US announcement prompted the Europeans to make one of their own.
To be clear, nothing has happened yet, and it’ll likely be months before it does. But the Trump administration’s threat couldn’t come at a worse time for the Europeans.
Why the tariff announcement is troubling — and encouraging
The US and Europe are already in the middle of a tense trade dispute. Trump has long accused the bloc of taking advantage of the US economically, and he previously imposed steel and aluminum tariffs on the EU last May — a move which greatly angered allies.
But in July 2018, both sides reached a sort of truce, agreeing to negotiate and avert a full-blown trade war, which would have meant more tariffs on many more products. It’s therefore possible that Trump’s recent threat will only lead to more tensions between Washington and Brussels at such a sensitive time. And it doesn’t help that EU Parliament elections are coming in May.
But there is some good news despite all of this.
Trump has long railed against the WTO and even threatened to pull the US out of it last year. Axios reported last June that Trump once said “I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States.”
That scared many analysts, who believe the global body has helped normalize international trade by helping countries solve their thorniest trade disputes. Trump’s tepid support for the WTO in the Boeing-Airbus dispute might signal that his negative views are changing.
“In some ways, it is good to see that Trump operates within the WTO system that he so often assails,” Jacob Kirkegaard, a global trade expert at the Peterson Institute for International Economics in Washington, told me. “This is — unlike the steel and aluminum tariffs — a WTO compliant trade retaliation, which should not start or escalate a trade war.”
If there’s a positive takeaway, albeit a small one, it’s this.