As the EU and US continue their retaliatory tit-for-tat, the battle lines are sharpening. This trade war is focused on large, direct state subsidies for their respective aerospace heavyweights, Airbus and Boeing. This hugely contentious fight has gone for the last 17 years and is flaring up once again. In retaliation, both countries are preparing for possible retaliatory measures that would have a severe impact on international trade.
This current conflict comes out of a 1992 accord. That one sought to limit governments’ ability to pour support for Airbus and Boeing into those companies. As the years went by, frustration on the US side only increased. This mounting frustration reached its zenith post-2004, when Washington charged that the EU was illegally subsidizing Airbus. The allegation that the U.S. engaged in a subsidy caused the WTO to initiate a process. In 2019, they authorized the US to slap tariffs on nearly $7.5 billion of EU goods and services annually.
In unexpected circumstances in 2020, the pendulum began to shift in support of the EU. Brussels prepared their own retaliatory tariffs in expectation of the ruling. They indicated plans to reinstate them when then-President Donald Trump called for a 90-day truce. This temporary reprieve resulted in a breakthrough in 2021 when both the EU and the US agreed to suspend tariffs, marking a momentary halt in hostilities.
Yet this détente was to be short-lived. The US’s rapid response was a withdrawal from the pact and a complaint to the WTO on formal grounds. On May 8, the European Commission acted. Further to that, they advanced a list of US exports totaling €95 billion that they would target with counter-tariffs. Second, the proposed tariffs are the right response to retaliatory trade barriers adopted by Washington. These barriers were salted into the earth again after Trump launched his declared trade war in mid-March.
What’s more, starting in mid-March, the US levied massive tariffs. They have imposed a 25% tariff on EU steel and aluminum and a 10% tariff on all imports from the EU. Key EU member states such as France, Germany, and Spain are understandably rattled by a heavy-handed approach. Having seen Airbus production facilities opened in their countries, they are afraid of US retaliation.
As the drama unfolded in T-TIP talks, Bernd Lange—the influential chair of the European Parliament’s international trade committee—said that planes were central to these negotiations.
“The big part [on the list] is the question of aircraft.” – Bernd Lange
The current environment suggests that both sides are bracing for an extended period of uncertainty that could last until 2026. The consequences are enormous. Boeing, the US aerospace giant and Europe’s largest competitor, is under consideration for EU counter-tariffs.
Leave a Reply