US-EU trade tensions risk triggering a transoceanic battle

Monday, 2019-10-07 16:37:12
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FILE PHOTO: An Airbus A350 takes off at the aircraft builder's headquarters in Colomiers near Toulouse, France, September 27, 2019. (Reuters)
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NDO – The long-lasting confrontation between the United States and the European Union (EU) concerning alleged subsidies to aircraft manufacturers Boeing and Airbus has escalated to a new level following the ruling of the World Trade Organisation (WTO). The risk of a “tariff battle” between the two economies on the two coasts of the Atlantic Ocean is becoming more evident than ever, “overshadowing” the world economy and global trade picture.

According to the decision of the WTO Arbitration Court, EU countries have competed unfairly by providing illegal subsidies to Airbus, so the US is entitled to impose tariffs on US$7.5 billion worth of EU goods in retaliation, starting from October 18. This is by far the largest award that the WTO has issued in a trade sanctions since its establishment in 1995. The WTO ruling could bring the 15-year-old case between the two “giants” in the world aircraft manufacturing industry to an end, but sparked a new controversy that risks resulting in a fierce battle in terms of tax imposition between the US and the EU.

Immediately hailing it as a “nice victory” for the Washington, US President Donald Trump warned that he would “comply” with the WTO decision. Accordingly, the US plans to impose a 25% import tax on about 150 products of EU countries, such as wine, olive oil, cheese and industrial products, in addition a 10% tariff on civil aircraft manufactured by Airbus’ four partners, including France, Germany, Spain and the United Kingdom.

In return, the EU called for a negotiated settlement to avoid damage to both sides, but still warned of taking appropriate countermeasures if the US implemented the “black tariff” from this October 18 as previously announced. The EU has prepared a list of US imports that may be subject to additional tariffs, with a total value of approximately US$20 billion. Invoking concerns over competitiveness, the EU also plans to conduct an “in-depth investigation” into Boeing’s joint venture project with the world’s third largest aircraft manufacturer Embraer (Brazil).

Obviously, the WTO ruling gives the US a distinct advantage, particularly as the dispute between the two coasts of the Atlantic Ocean has yet to calm down following the US’ raising taxes on aluminum and steel imported from the EU in 2018, and as the negotiation on a new trade deal between the two sides has yet to see any progress. Meanwhile, the “trade war” between the US and China, which has been lasting for over one and a half years, is still proceeding. The WTO ruling in favour of the US has helped President Trump further enhance his “America First” policy, especially the efforts to “restore trade balance” with partners, while giving additional “plus points” for him in the campaign for a second presidential tenure.

However, the “shadow” of a new Trans-Atlantic tax battle has left US businesses “on pins and needles”. Experts estimate that the new tariffs, planned to be imposed on the EU by Washington, will cause food prices in the US to rise, while reducing revenues and jobs of tens of thousands of retailers, including about 14,000 food traders. The imposition of high tariffs not only make US consumers pay more, but also becomes an obstacle to the world’s no. 1 economy. Particularly for Boeing, the sanctions, to be implemented by the EU, can hold “devastating power”, driving the leading US aircraft manufacturer to cease its operations in Europe, which is inherently the market that receives hundreds of Boeing aircraft each year.

It is also warned that the risk of “tit-for-tat” tariffs between the US and the EU will destroy trade relations between the two Atlantic coasts and deeply impact global trade and the world economy. The WTO forecasts that global trade growth will slow down. Meanwhile, according to the Organisation for Economic Cooperation and Development (OECD), US-EU trade escalation will reduce investors’ trust and activities, create policy instability, increase the risks for financial markets and worsen the “grey outlook” of the world economy.

Concerns about a global economic downturn are increasing, mostly due to trade conflicts around the world, especially the US-China trade tensions that have yet to subside after more than a year of escalation. The risk of new disputes is triggering greater concern among the public. That is what both the US and the EU have to consider, as a transoceanic tariff battle is on the brink of taking shape.