BRUSSELS – The US is entitled to levy tariffs on $7.5 billion of exports from the European Union over the bloc’s subsidies to Airbus SE, the World Trade Organization said, potentially opening up a new front in the Trump administration’s global trade fight.
The WTO’s decision on Wednesday concludes part of a 15-year battle over support programs for aircraft makers Airbus and Boeing Co. The WTO will rule on a separate EU case against US subsidies to Boeing, also previously deemed illegal, in the first half of next year, determining the value of US exports the EU will be permitted to hit with tariffs.
The latest ruling sets up a collision between allies that have long resolved most disagreements without resorting to duties. EU officials in Brussels have proposed negotiating a settlement to avoid tit-for-tat tariffs, but US officials say Europe must first comply with WTO rulings. The standoff risks escalating trade tensions at a critical time.
President Trump is poised to decide by 13 November whether to levy tariffs on EU cars and auto parts, raising the threat of a rapid escalation of trans-Atlantic duties on goods worth some $100 billion. Leaders of a new EU administration, slated to take office 1 November, have urged Trump to avoid a trade war.
At stake for the world’s two biggest plane manufacturers is the fracturing of the market.
Under WTO rules, Washington and Brussels may levy tariffs on any products from aircraft parts to food, alcoholic beverages, motorcycles and bicycles. That could potentially dent Airbus sales in the US – and Boeing sales in Europe next year – while also disrupting global supply chains.
The EU filed its WTO complaint against Boeing nine months after the US case against Airbus. Washington, as a result, will be able to punish Europe first.
Washington has prepared a list of European goods valued at $21 billion from which it can select for tariffs. Brussels has a $20 billion list of US exports to target.
“If the U.S. decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same,” EU Trade Commissioner Cecilia Malmstrom said after Wednesday’s ruling. She said the US had not engaged with an EU proposal from July for a comprehensive plan to regulate subsidies for the civil-aircraft industry.
Trump said in April that EU subsidies for Airbus hurt the US but that “it will soon stop.” He said Washington would impose tariffs to recover damages, a position the US ambassador to the EU, Gordon Sondland, reiterated in September.
US tariffs could prompt Europe to impose tariffs before seeking a settlement and even before the WTO rules on its case against Boeing, according to EU diplomats.
To avoid having no response until the WTO ruling, the EU is considering revoking a settlement with the US from 2006 over tax exemptions for international sales structures used by Boeing and other US companies known as foreign-sales corporations. That would enable Brussels to hit some $4 billion worth of US exports, but also risks unraveling decades of similar trade settlements.
“You have to look at it from a tactical point of view,” an EU diplomat said. “We bring it to the table to highlight all our options and create some leverage, but our line has been to just settle it with a negotiated solution.”
While the EU hasn’t yet decided on its immediate response, officials acknowledge that revoking old rulings might backfire – and potentially even prompt US car tariffs. It’s within the EU’s right to revoke a prior settlement, although it would be unusual.
Following Wednesday’s WTO decision, Airbus called on Washington and Brussels to avoid tariffs that would “severely impact” the aircraft industry, hurt US-EU trade relations and damage the global economy. Duties would raise costs for airlines on both sides of the Atlantic and hit a U.S. supply chain employing 275,000 people and billions of dollars in revenue annually, the European plane-maker said.
“Airbus is therefore hopeful that the US and the EU will agree to find a negotiated solution,” Chief Executive Officer Guillaume Faury said in a statement. The aircraft-maker, which risks losing sales because of potential levies, also sources some 40% of its parts from the US and has a plant in Mobile, Ala.
The WTO aircraft battle could further strain trans-Atlantic trade relations amid a shaky truce in place since July 2018. A White House agreement at that time halted tit-for-tat trans-Atlantic tariffs, which Trump triggered by slapping the EU with steel and aluminum duties the bloc deemed illegal. But the two sides have yet to deliver on a pledge to strike an industrial-goods trade deal and liberalize commerce by cutting red tape.
“It takes two to tango, and I’m ready to engage politically with the United States to resolve our trade differences,” said Phil Hogan, the EU agriculture commissioner who has been tapped as trade chief for the incoming administration.
During his confirmation hearing Monday at the European Parliament, Hogan said that “it doesn’t make sense” for the US to shun EU proposals to settle the Airbus and Boeing disputes, especially since Brussels would soon be able to hit back against Washington’s tariffs. He added, “We have to defend the European Union.”