US to impose $10.3b in tariffs on EU goods over Airbus row

Amount highest to be greenlit by WTO, may trigger Europe's tit-for-tat retaliation

Fuselage sections of new Airbus A-320 aircraft at the assembly hangar in Hamburg, Germany. The European planemaker warned that the US would be hit by its own tariffs. PHOTO: BLOOMBERG
Fuselage sections of new Airbus A-320 aircraft at the assembly hangar in Hamburg, Germany. The European planemaker warned that the US would be hit by its own tariffs. PHOTO: BLOOMBERG

The United States risks igniting a fresh trade war across the Atlantic with its decision to impose tariffs on US$7.5 billion (S$10.3 billion) of European goods over a long-running dispute with the European Union about illegal subsidies to planemaker Airbus.

The World Trade Organisation (WTO) authorised Washington's retaliatory tariffs on Wednesday, the highest amount ever greenlit by the world trade regulator.

Though legal, America's tariffs could trigger a tit-for-tat retaliation from Europe, further weakening a global economy already shaken by its protracted trade war with China.

The tariffs could kick in as early as Oct 18, said US Trade Representative (USTR) Robert Lighthizer.

They include a 10 per cent import tax on large civil aircraft from France, Germany, Spain and the United Kingdom, and 25 per cent on products such as Irish and Scotch whisky, German coffee wafers and Swiss cheeses.

The WTO's decision came 15 years after the US first lodged a complaint in 2004, and was based on its 2011 finding that the EU had illegally subsidised Airbus to the tune of US$18 billion over four decades.

European Commissioner for Trade Cecilia Malmstrom said the US tariffs would be short-sighted and counterproductive.

"Our readiness to find a fair settlement remains unchanged. But if the US decides to impose WTO authorised countermeasures, it will be pushing the EU into a situation where we will have no other option than to do the same," she said.

Airbus warned that America itself would be hit by its own tariffs.

  • European goods targeted by tariffs

  • 10 PER CENT TARIFFS

    • Large civil aircraft from France, Germany, Spain and Britain

  • 25 PER CENT TARIFFS

    • Single-malt Irish and Scotch whiskies

    • Cheese, butter, pork sausages, yogurt, fruit and molluscs from several European countries

    • Liqueur from Germany, Ireland, Italy, Spain and Britain

    • Olive oil and olives from Germany, Spain and Britain

    • British sweaters and suits

    • German tools, including knives, screwdrivers and pipe-cutters

    • Books from Germany and Britain

    SOURCE: US TRADE REPRESENTATIVE

It said that Washington's tariffs on aircraft or aircraft parts would raise the cost of acquiring new aircraft for both American and European airlines, and create insecurity and disruption to the aerospace industry and the broader global economy.

Airbus noted that close to 40 per cent of its aircraft-related procurement came from US aerospace suppliers, who supported 275,000 American jobs in 40 states and spent US$50 billion in the last three years alone.

"If tariffs are applied, the entire global industry will be harmed," said Airbus.

Trade watchers and Washington officials hoped that the threat of American tariffs would pressure Europe to negotiate a settlement to stave off or lower the tariffs.

They also noted that things could have been worse in several ways: The US was entitled to tariff rates of up to 100 per cent on certain products, but had chosen a cap of 25 per cent for now.

The US$7.5 billion of goods targeted form about 1.5 per cent of the US$487.9 billion of goods that the US imported from the EU last year, according to official USTR data.

Moreover, the EU in April published a list of US$20 billion of American imports it could target in retaliation for US planemaker subsidies, while the US had its own list of US$21 billion of EU products.

Mr Lighthizer said: "We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers."

Cato Institute trade policy expert Simon Lester wrote in a commentary on the think-tank's website: "The ideal outcome would be that both sides will remove, or at least rein in, their aircraft subsidies, and I hope that these tariff authorisations move us in that direction. But it will be a challenge."

Unlike the Trump administration's unilaterally imposed tariffs on Chinese goods, its tariffs on the EU have so far adhered to a neutral arbitration process governed by the rule of law, he noted.

"These tariffs have the same negative economic impact as all the other recent tariffs imposed by the Trump administration, but it is worth noting that they aren't quite as bad as many of those other tariffs because they are - so far, anyway - being pursued in accordance with international law," he said.

The EU is awaiting a WTO decision on whether it can retaliate with tariffs against the US over American subsidies to Boeing, due next year.

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A version of this article appeared in the print edition of The Straits Times on October 04, 2019, with the headline US to impose $10.3b in tariffs on EU goods over Airbus row. Subscribe