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President Trump, with his usual mixing of fact and hyperbole, trumpeted yesterday that the US will levy some $11 billion in tariffs against Europe in retaliation for unfairly subsidizing Airbus. The EU promptly rebutted that it wouldn’t be “bullied” and threatened counterretaliation. And the headlines also promptly screamed “trade war.”
Let’s back up. This all stems from a fifteen-year battle between the US and Europe over alleged illegal subsidies (under WTO rules) for Boeing and Airbus. Each side mounted cases in the WTO beginning in 2004, producing an extended series of decisions and appeals dealing with complicated financial, legal — and national security — issues. The potential sums involved were and are still quite large, as commercial aircraft development and production entails a huge investment commitments. The WTO judicial bodies have ruled that both sides have violated international subsidy rules, and the points at issue now relate to the dollar amount of retaliation a WTO arbitral panel will allow. What the president was referring to was an estimate prepared by US Trade Representative Robert Lighthizer. A decision is expected this summer, and the USTR has indicated that it will not take further action until it receives the WTO’s imprimatur at that time. Trade law experts generally expect that the US estimate is likely in the ballpark for the retaliatory action, given that EU’s so-called “launch aid” has extended for many years and covered several generations of Airbus aircraft. (It should be noted that the WTO also ruled that subsidies to Boeing from the states of Washington and South Carolina were also illegal; but the subsidy value does not match the magnitude of the EU aid.)
In its list of potential retaliatory tariff items, the Trump administration has added an unprecedented twist of the knife. In addition to a typical list of politically damaging items — cheese, wine, clothing, nails, and clocks — it includes aircraft and aircraft parts. Should the levies be high enough, they would have a direct, negative impact on Airbus’ future production of commercial jets. USTR claims, however, it is seeking accommodation, not retribution — though on US terms. Lighthizer stated: “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft.”
Here are takeaways from the developing faceoff. First, in contrast to the Trump administration’s unilateral, bogus invoking of national security under Section 232, an obscure provision of a 1962 trade law to institute steel and aluminum tariffs, in this case the USTR is strictly following WTO rules and procedures. As Trump critic and WTO legal expert Simon Lester of the Cato Institute has remarked: “This action suggests they still value playing by the [WTO] rules.”
Before getting too euphoric, however, one should remember that this is the president who called the WTO the “the single worst trade deal ever made.” Further, the president and USTR Lighthizer show no sign of backing away from unilateral actions in violation of other WTO obligations, or to cease efforts to stymy the WTO dispute settlement system. Thus, what this episode may really indicate is a high degree and pragmatism — and cynicism — about global trade rules: Use them when they fit US interests, ignore them when they do not.
Second, the US and Boeing are not invulnerable to strong EU counter retaliation. The US company is still reeling from the 737 MAX debacle, and the EU would almost certainly follow the US lead in attacking Boeing aircraft sales and parts. Only the fledgling, ambitious Chinese aircraft industry would benefit from such a knock-down drag-out battle.
In the end, it will likely come down to Lighthizer’s hard-nosed desire for a practical solution that dramatically reduces EU “launch support” against the president’s instinctive combativeness: “The EU has taken advantage of the US on trade for many years. It will soon stop!” The betting here is that Lighthizer will prevail, but only if the EU finally agrees to a compromise saleable to our temperamentally volatile president.
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