Step aside (fading) trade war with China: there is a new aggressor – at least according to the US Trade Rep Robert Lighthizer – in town.
In a statement on the USTR’s website published late on Monday, the US fair trade agency announced that under Section 301 of the Trade Act, it was proposing a list of EU products to be covered by additional duties. And as justification for the incremental import taxes, the USTR said that it was in response to EU aircraft subsidies, specifically to Europea’s aerospace giant, Airbus, which “have caused adverse effects to the United States” and which the USTR estimates cause $11 billion in harm to the US each year.
One can’t help but notice that the latest shot across the bow in the simmering trade war with Europe comes as i) Trump is reportedly preparing to fold in his trade war with China, punting enforcement to whoever is president in 2025, and ii) comes just as Boeing has found itself scrambling to preserve orders as the world has put its orderbook for Boeing 737 MAX airplanes on hold, which prompted Boeing to cut 737 production by 20% on Friday.
While the first may be purely a coincidence, the second – which is expected to not only slam Boeing’s financials for Q1 and Q2, but may also adversely impact US GDP – had at least some impact on the decision to proceed with these tariffs at this moment.
We now await Europe’s angry response to what is Trump’s latest salvo in what is once again a global trade war. And, paradoxically, we also expect this news to send stocks blasting higher as, taking a page from the US-China trade book, every day algos will price in imminent “US-European trade deal optimism.”
Below the full statement from the USTR (link)
USTR Proposes Products for Tariff Countermeasures in Response to Harm Caused by EU Aircraft Subsidies
The World Trade Organization (WTO) has found repeatedly that European Union (EU) subsidies to Airbus have caused adverse effects to the United States. Today, the Office of the United States Trade Representative (USTR) begins its process under Section 301 of the Trade Act of 1974 to identify products of the EU to which additional duties may be applied until the EU removes those subsidies.
USTR is releasing for public comment a preliminary list of EU products to be covered by additional duties. USTR estimates the harm from the EU subsidies as $11 billion in trade each year. The amount is subject to an arbitration at the WTO, the result of which is expected to be issued this summer.
“This case has been in litigation for 14 years, and the time has come for action. The Administration is preparing to respond immediately when the WTO issues its finding on the value of U.S. countermeasures,” said U.S. Trade Representative Robert Lighthizer. “Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft. When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.”
In line with U.S. law, the preliminary list contains a number of products in the civil aviation sector, including Airbus aircraft. Once the WTO arbitrator issues its report on the value of countermeasures, USTR will announce a final product list covering a level of trade commensurate with the adverse effects determined to exist.
After many years of seeking unsuccessfully to convince the EU and four of its member States (France, Germany, Spain, and the United Kingdom) to cease their subsidization of Airbus, the United States brought a WTO challenge to EU subsidies in 2004. In 2011, the WTO found that the EU provided Airbus $18 billion in subsidized financing from 1968 to 2006. In particular, the WTO found that European “launch aid” subsidies were instrumental in permitting Airbus to launch every model of its large civil aircraft, causing Boeing to lose sales of more than 300 aircraft and market share throughout the world.
In response, the EU removed two minor subsidies, but left most of them unchanged. The EU also granted Airbus more than $5 billion in new subsidized “launch aid” financing for the A350 XWB. The United States requested establishment of a compliance panel in March 2012 to address the EU’s failure to remove its old subsidies, as well as the new subsidies and their adverse effects. That process came to a close with the issuance of an appellate report in May 2018 finding that EU subsidies to high-value, twin-aisle aircraft have caused serious prejudice to U.S. interests. The report found that billions of dollars in launch aid to the A350 XWB and A380 cause significant lost sales to Boeing 787 and 747 aircraft, as well as lost market share for Boeing very large aircraft in the EU, Australia, China, Korea, Singapore, and UAE markets.
Based on the appellate report, the United States requested authority to impose countermeasures worth $11.2 billion per year, commensurate with the adverse effects caused by EU subsidies. The EU challenged that estimate, and a WTO arbitrator is currently evaluating those claims.