WTO: U.S. May Impose Tariffs on $7.5 Billion in EU Goods Because of Illegal Subsidies to Airbus

The World Trade Organization on Wednesday authorized President Donald Trump to impose tariffs on about $7.5 billion worth of European goods, capping a 15-year trans-Atlantic dispute over illegal subsidies to aircraft maker Airbus. The decision opened the door to a broader trade war with the European Union.

U.S. Trade Representative Robert Lighthizer has promised to implement the tariffs on European aircraft and helicopters, as well as consumer goods such as wine and Gouda cheese “immediately” following the WTO ruling. The European Union has vowed to retaliate with its own levies on American products while it awaits a separate WTO ruling next year on its complaint that Boeing, a U.S. manufacturer and Airbus rival, also has received improper government backing.

“Where this goes ultimately is a negotiation,” said William Reinsch, a former Commerce Department official. “They’re guiltier than we are.”

The stock prices of both companies fell in midday trading. Airbus was down about 1.7% while Boeing fell about 2.3%.

Any U.S. trade measures would be “short-sighted and counterproductive,” EU Trade Commissioner Cecilia Malmstrom said in a statement.

“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,” she warned.

Airbus, likewise, said that a tit-for-tat tariff war would only damage both sides.

The company, which employs about 1,300 workers in its Mobile, Alabama, aircraft plant, said it spent about $50 billion over the past three years on American parts for its planes. That spending supported 275,000 jobs in 40 states, the company said.

Airbus CEO Guillaume Faury said the company hoped the U.S. and EU would reach a negotiated settlement “before creating serious damage to the aviation industry as well as to trade relations and the global economy.”

Under global trade rules, countries are generally prohibited from providing subsidies that give domestic companies an unfair trade advantage over foreign rivals. The WTO is often called on to rule on allegations of improper conduct.

Malmstrom said the EU in July had provided the Trump administration with “concrete proposals” to resolve the subsidies dispute, but received no response.

Lighthizer’s office had no immediate comment.

Lighthizer has said that the United States will keep any tariffs in place until European officials agree to end subsidies for Airbus.

With Trump considering the imposition of separate 25% tariffs on European automobiles, trade relations between the United States and its closest allies are set to sour even as the U.S.-China trade war drags on.

The president and EU President Jean-Claude Juncker last summer agreed to forestall any tariffs while negotiators tried to hammer out a broad trade agreement.

In May, the U.S. Commerce Department found that rising numbers of imported automobiles and auto parts imperiled national security by challenging the viability of U.S.-based research and development.

Trump is expected to decide next month whether to proceed with his threatened tariffs on European cars, a move that would rock financial markets and deal both economies a serious blow.

“If he does that, he triggers a war,” said Reinsch, now at the Center for Strategic and International Studies, who added that European officials’ commitment to operate within WTO rules would likely contain the conflict.

The EU’s ability to respond to any U.S. action also could be complicated by the turnover in leadership in Brussels, Reinsch said. Effective Nov. 1, Europe’s top team gets a complete makeover, including a new president and trade chief.

The WTO earlier this year had ruled in favor of Washington in its long-running complaint that European governments backed Airbus with generous multibillion-dollar subsidies in its battle against Boeing, its U.S. rival. Wednesday’s ruling determined the value of the authorized U.S. tariff action.

The ruling came one day after the WTO slashed its forecast of global trade growth to just 1.2% this year, down from 2.6% in April. Next year, merchandise trade volumes are projected to increase by 2.7% compared with an initial 3% estimate, and WTO economists cautioned “that downside risks remain high and that the 2020 projection depends on a return to more normal trade relations.”

The United States first complained to the WTO about Airbus subsidies in 2004. Seven years later, a trade panel ruled that the European Union had provided the aircraft maker with $18 billion in discounted financing between 1968 and 2006.

The EU filed a similar WTO alleging that Boeing also had received forbidden government support. In an initial decision, the WTO held that the U.S. aircraft maker had received up to $4.3 billion in research and development support and income tax breaks.

In response, the U.S. modified the R&D funding and revoked the income tax break to eliminate the harm to Airbus, according to USTR. After the EU complained again, the WTO found that a Washington state tax provision improperly boosted Boeing by about $100 million from 2013 to 2015.

While today’s ruling will likely be welcomed by the White House, the length of the proceedings underscores the president’s call for WTO reforms. “They are not fans of the WTO,” said Timothy Keeler, a trade attorney at Mayer Brown. “It’s not an effective system of compliance to take 15 years to get authorized to act.”