EU told to ‘brace’ for multi-billion Trump tariffs this summer

EU told to ‘brace’ for multi-billion Trump tariffs this summer

— By Hans von der Burchard, Jakob Hanke and Maxime Schlee
5/28/19, 6:50 PM CET | View in your browser

The Tariff Man is on track to hit hard again this summer, and it’s bad news for EU companies ranging from Dutch cheesemakers to industrial heavyweight Airbus.

European Commissioner for Trade Cecilia Malmström warned the EU’s trade ministers at a meeting on Monday that they needed to steel themselves for U.S. President Donald Trump to hit billions of euros-worth of European goods with tariffs, ramping up a decades-long dispute over unwarranted subsidies for Airbus.

Three officials in the room said Malmström warned them that the U.S. had rejected attempts to negotiate a deal on aviation subsidies and added that Washington was now willing to proceed with the tariffs, which would be legal under World Trade Organization (WTO) rules.

“We should brace for this,” the officials cited Malmström as saying.

Although the WTO ruled that not only Airbus but also its American competitor Boeing benefited from illegal state aid, the U.S. case against Airbus is more advanced. Washington said last month it wants to levy retaliatory tariffs on up to $21 billion of European products, a decision that still needs to be confirmed by a WTO arbitrator. The verdict is expected to come in July.

“There is a big probability that the U.S. will apply these tariffs as soon as the WTO arbitrator has ruled,” said one EU diplomat who attended Malmström’s briefing. The diplomat added that the U.S. duties would likely hit the EU by the end of July or early August: “It’s what this U.S. administration likes.”

The likely incoming tariffs risk further souring transatlantic trade relations, which have already deteriorated over U.S. duties on European steel and aluminum exports, a pending threat to impose hefty auto tariffs as well as a stark disagreement on the scope for bilateral trade talks. One EU official described the U.S. approach as “hit first, talk later.”

President Trump has expressed his willingness to impose the tariffs: “The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products!” he tweeted last month, adding: “The EU has taken advantage of the U.S. on trade for many years. It will soon stop!”

Although the $11 billion mentioned by Trump represents the harm caused by EU subsidies, according to the Office of the U.S. Trade Representative, the list of targeted products actually covers $21 billion worth of European exports. The U.S. can choose products and then tax them at different rates in order to claw back the claimed $11 billion in damage.

‘Unnecessary trade tensions’

Although the European Commission expects the WTO arbitrator to rule that the U.S. can only target a lower sum than requested, Brussels is nonetheless expecting a negative impact for exporters of iconic European foods such as Dutch Gouda and Edam cheese, French wine and Spanish olive oil.

“I cannot see any reason to make basically the U.S. cheese aficionados pay for the aircraft battle, since they would have to pay the higher prices for the dairy products from the EU,” said Léa Vitali from the European Dairy Association.

A large coalition of winemakers from France, Italy and Spain wrote a letter to Malmström last week, urging both sides to work together and “reduce or eliminate wine tariffs, not raise them.”

Besides food products, the U.S. tariffs also target high-value exports of European aircraft parts, which threatens the supply chains for Airbus investments in the U.S.: “The investment of Airbus in Mobile, Alabama would be deeply affected,” a senior Commission official said last month, adding that this “would also destroy jobs in the U.S.”

Airbus spokesperson Stefan Schaffrath called the proposed U.S. duties on supply parts “totally unjustified” and warned of “unnecessary trade tensions.”

In addition to the economic impact comes the psychological damage, because the EU would for months be exposed to hefty U.S. tariffs that are completely legal under WTO rules without being able to retaliate. The U.S. could use this as leverage in trade negotiations.

Although Brussels has presented its own hit list targeting about $20 billion of U.S. exports in response to illegal state aid for Boeing — including airplanes, tractors, suitcases, frozen fish, fruits, wine, liquors and ketchup — the WTO arbitrator is unlikely to issue a decision on that retaliation before February or March next year. “The U.S. has an advantage here because their case is advanced by six to nine months,” said the EU diplomat.

Even if Brussels is allowed to hit back at the U.S. with its own tariffs by early next year, the European Commission cautioned that an escalating trade battle would fail to address an emerging challenge from China. While the EU and U.S. were fighting, “others are heavily subsidizing aircraft in the world, elsewhere than in the United States and the EU,” said the senior Commission official.

“The only reasonable solution is a negotiated settlement” between Brussels and Washington, said Airbus spokesperson Schaffrath.

Related stories on these topics: Airplanes, Multilateral trade, Subsidies (in Agriculture and Food), Subsidies (in Trade), Tariffs, Trade (in Agriculture and Food), Trade (in Mobility), Trade war, United States (in Agriculture and Food), United States (in Mobility), United States (in Trade), Cecilia Malmström (in Agriculture and Food), Cecilia Malmström (in Trade), Donald Trump, World Trade Organization (WTO)

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