Same trade goal, different continent
October 8, 2019
Last week, the Trump administration continued its efforts to create a more fair international trade environment for the US, this time with the support of the largest World Trade Organization (WTO) arbitration award in history. Joining China, Europe now has to face the backlash of $7.5 billion in tariffs because the WTO ruled they have unfairly subsidized Airbus for nearly two decades.
- The US got the green light to impose $7.5 billion in tariffs on European goods, thanks to winning the largest WTO arbitration award in history
- Europe illegally subsidized Airbus, giving them an unfair advantage over Boeing
- The ruling and subsequent tariffs will make European goods like cheese and wine more expensive, which could help US farmers and manufacturers
How did the US win $7.5 billion in its dispute against Europe?
The case began 13 years ago. In 2006, the US Government filed a claim with the World Trade Organization (WTO) claiming Europe gave $22 billion in illegal subsidies to Airbus, which gave them an unfair advantage in the global airplane marketplace.
Airbus received billions in what’s called “launch aid,” in order to develop new planes faster and cheaper. The EU would loan them money at a much lower interest rate than they could get elsewhere, and Airbus would only have to repay the loan if the new plane hit a predetermined sales target. If it didn’t, they didn’t have to pay back the loan. The WTO ruled that this kind of benefit was illegal and stifled competition with Boeing.
Europe made a similar, counter-claim against the US and Boeing.
Expectedly, Europe itself isn't too happy with the WTO ruling that allows the US to levy $7.5 billion in tariffs on things like French wine, Italian cheese and Spanish olives.
Europe also filed a claim with the WTO that accused the US of giving $23 billion in illegal aid to Boeing. In its case, Europe argued that Boeing got government contracts and tax breaks to boost its business. But in 2011, the WTO dismissed 80 percent of the claims the EU made against Boeing, and called for Boeing to change some of its tax practices. In 2017, the WTO found that Boeing complied with virtually all its rulings.
What’s the difference between the two cases?
Although the WTO found both the US and Europe at fault for illegal subsidies, the EU didn’t comply with the WTO ruling and continued giving Airbus an unfair advantage for the last 15 years. However, Boeing did comply with WTO requests and therefore won its case to levy $7.5 billion in tariffs against Europe.
So what does this mean for your paycheck?
Beginning October 18, 2019, the US will impose a 10 percent tariff on European aircraft, and a 25 percent tariff on many agricultural products like cheese, wine, scotch whisky, and manufacturing equipment. Those tariffs could be beneficial to states like Wisconsin, where more than 90 percent of farms raise dairy cows.
If European cheese is more expensive at the grocery store, consumers are more likely to buy cheese made in Wisconsin. There’s also a chance the administration will put a tariff on European car imports, and that could help US auto manufacturers.
To protect American workers, the Trump administration exempted Airbus planes manufactured at the company’s Alabama plant from the 10 percent duty.
Is a truce possible?
While Europe has said there is still time to negotiate an agreement, it’s unlikely there will be time for any real negotiation before tariffs go into effect on October 18. And the EU has already vowed to retaliate, as the European Commission’s spokesman, Daniel Rosario, reiterated when he said “if the U.S. imposes countermeasures, it will be pushing the EU into a situation where we will have to do the same.”
While $7.5 billion in tariffs sounds like a lot, it’s a relatively small amount compared to the $1 trillion trade relationship between the US and Europe - which is the largest in the world. Our goal is to level the playing field and make sure both the US and Europe get a fair shake, and the recent WTO ruling is helping us get one step closer to achieving it.
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