When is a setback for U.S.-European trade not necessarily a setback for U.S.-European trade? When it’s Monday’s European Union announcement of $4 billion in new tariffs on U.S. goods, in retaliation for the Trump administration’s imposition of tariffs on $7.5 billion in European goods, ranging from aircraft to whiskey, last year. This latest round of tit-for-tat levies so clearly demonstrates the mutually destructive nature of transatlantic trade conflict that it may finally prompt both sides to negotiate a permanent settlement.
At issue is the United States’ 16-year-old battle at the World Trade Organization, initiated under the Bush administration, to punish Europe for subsidizing Airbus, the Franco-Anglo-German-Spanish consortium that competes for global commercial aircraft sales with the U.S. national champion, Boeing. The E.U., in effect, countersued, and the WTO — confirming its usefulness as an impartial arbiter in such matters — has ruled, correctly, that both sides are right. Each is guilty of illegally subsidizing aircraft exports, Europe via subsidized loans, and the United States through state-level tax breaks.
Therefore, unlike many other tariffs enacted under the Trump administration, the ones it imposed on Europe last year were authorized by the WTO and valid under international law. Alas for the United States, the same can be said about the tariffs the E.U. just imposed. Collateral damage may soon pile up on the various non-aircraft industries each side is punishing to gain leverage on the other.
The obvious solution is for the United States and Europe to negotiate mutual elimination of unlawful subsidies, as indeed both sides claim already to be doing. The end of tariffs and subsidized competition would be especially beneficial for Boeing, which is in deep crisis, and dependent on federal aid, due to the pandemic and problems with its troubled 737-Max aircraft, sales of which have been all but paralyzed since two fatal crashes of the new model in late 2018 and early 2019. Yet Airbus, too, has much to gain from a truce since, while the United States and the E.U. have been fighting over the past decade-and-a-half, China has been building its own commercial aircraft manufacturer, COMAC, into a serious potential competitor, both in the huge Chinese market and beyond. The pandemic may have shrunk the air travel business permanently, or at least for the medium term; if the United States and Europe want to prevent China from subsidizing its way to a larger share of that shrinking pie, jointly practicing lawful trade could help.
The Trump administration has gratuitously provoked Europeans with ill-conceived tariffs on steel and other imports, as well as threats against the European automotive industry. By contrast, peace in the U.S.-E.U. aircraft war could be a predicate for establishing the united front of democratic capitalist countries against Chinese mercantilism that the Biden campaign promised. In fact, maximizing free trade with high-wage, environmentally conscious Europe presents few of the problems trade opponents often attribute to deals with low-wage countries such as Mexico. Chastened by the costly trade wars of the Trump years, and needing new sources of growth to recover from the pandemic, both Europe’s leaders and President-elect Joe Biden have every reason to get to yes.