U.S. set to widen trade war on EU front

Italian sausages, cheeses and other traditional foods for sale in Milan’s Piazza del Duomo in December 2016. (Florin1961/iStock/Getty Images)

London/Brussels/Washington | Reuters — The United States won approval on Wednesday to impose import tariffs on US$7.5 billion worth of European aircraft and agricultural goods over illegal EU subsidies handed to Airbus, threatening to trigger a tit-for-tat transatlantic trade war as the global economy falters.

The decision by the World Trade Organization pushes a 15-year corporate dispute over illegal support for plane giants to the centre of caustic world trade relations and comes on top of a tariff war between Washington and Beijing.

In response, the United States intends to impose new 10 per cent tariffs on aircraft and 25 per cent on other specified European agricultural and industrial goods starting as early as Oct. 18, an official from the U.S. Trade Representative’s office said. The official described the decision a “significant victory” for the United States.

The Trump administration’s list of 25 per cent retaliatory tariffs, released later Wednesday, includes French wine, Italian cheese and single-malt Scotch whisky. Italian wine was exempted from the list.

Other products on the U.S. tariff list include United Kingdom-made sweaters, pullovers, cashmere items and wool clothing, as well as olives from France, Germany and Spain, EU-produced pork sausage and other pork products other than ham, and German coffee. The new tariffs are to take effect as early as Oct. 18.

The aircraft tariffs would not apply to aircraft parts, sparing Airbus assembly operations in Alabama from higher costs, as well as shielding European parts used by U.S. plane maker Boeing.

WTO arbitrators said Boeing had lost the equivalent to $7.5 billion a year in sales and disruption to deliveries of some of its largest aircraft because of cheap European government loans to arch-rival Airbus (all figures US$).

The decision, confirming a figure reported by Reuters last week, allows Washington to target the same value of EU goods, but bars any retaliation against European financial services.

It is part of a two-way dispute that diplomats and trade experts expect to lead to tit-for-tat European import tariffs against U.S. goods next year over state subsidies for Boeing.

The Trump administration asked the WTO for an emergency meeting to give the formal ratification needed for tariffs in mid-October.

Goods from EU countries that are not part of the Airbus consortium, such as Italy, would still be targeted, a USTR official said, because European Union nations all bear responsibility for the situation.

Broad selling amid worries over slowing global growth that had punished European stocks earlier on Wednesday accelerated as the ruling revived worries about damage to the already-ailing regional economy. The pan European STOXX 600 index finished down 2.7 per cent, its worst day since December 2018.

Wall Street’s main indexes suffered their sharpest one-day declines in nearly six weeks on Wednesday after employment and manufacturing data suggested that the U.S.-China trade war is taking an increasing toll on the U.S. economy.

War of attrition

The world’s two largest planemakers have waged a war of attrition over subsidies at the WTO since 2004 in a dispute that has tested the trade policeman’s influence and is expected to set the tone for competition from would-be rivals from China.

The WTO had already found that both Europe’s Airbus and its U.S. rival Boeing received billions of dollars of illegal subsidies in the world’s largest corporate trade dispute.

The global trade body is due to decide early next year on the level of annual tariffs the EU can impose on U.S. imports.

German Chancellor Angela Merkel said the decision would weigh on the European planemaker, which is one of Germany’s largest industrial employers and is headquartered in France.

Before any tariffs can be imposed, the WTO’s Dispute Settlement Body must formally adopt the arbiters’ report in a process expected to take between 10 days and four weeks.

Its next scheduled meeting is on Oct. 28, but Washington’s request could bring that forward to Oct. 14.

‘Lose-lose’ trade war

While the level of tariffs amounts to less than three days worth of trade between Europe and the United States, importers led by U.S. airlines that buy Airbus jets have urged Washington to be selective when choosing industries to hit in order to avoid causing collateral damage to the U.S. economy.

EU manufacturers are already facing U.S. tariffs on steel and aluminum and a threat from U.S. President Donald Trump to penalize EU cars and car parts. The EU has in turn retaliated.

The Trump administration believes tariffs were effective in bringing China to the negotiating table over trade, and in convincing Japan to open its agricultural market to U.S. products.

Airbus has said this would lead to a “lose-lose” trade war and has published a video stressing its contribution to the U.S. industry through local assembly plants and 4,000 direct jobs.

Not all analysts see the WTO’s aircraft subsidy row — with its thousands of pages of legal and aeronautical jargon — inflaming broader international trade tensions.

“In some ways it is a distinct issue from the rest of the Trump trade wars,” said Constantine Fraser of UK research firm TS Lombard.

“I think the White House is going to be aggressive in pursuing this, but I don’t think there is necessarily any kind of read-through from this to the prospect of tariffs on cars.”

Reporting by Tim Hepher in London, Philip Blenkinsop in Brussels and David Shepardson in Washington; additional reporting by Stephanie Nebahay in Geneva, Josephine Mason and Danilo Masoni in London, Andreas Rinke in Berlin and Andrea Shalal, Heather Timmons and David Lawder in Washington; writing by Tim Hepher and Philip Blenkinsop.



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