U.S. plans to impose tariffs on EU imports in Airbus case

WASHINGTON – The Trump administration announced Wednesday it will impose tariffs on $7.5 billion of European imports beginning Oct. 18 in a case involving European Union subsidies to the plane maker Airbus.

The latest escalation in the administration’s tariffs will open a new chapter in the trade wars that are depressing the world economy and heightening fears of a global recession. It comes just as the Trump administration is in the midst of trying to negotiate a resolution to its high-stakes trade war with China.

The administration received a green light earlier Wednesday from the World Trade Organization, which ruled the United States could impose the tariffs as retaliation for illegal aid that the 28-country EU gave to Airbus in its competition with its American rival Boeing.

Culminating a 15-year fight over the EU’s subsidizing of Airbus, the administration’s Office of the U.S. Trade Representative said it plans to publish a list of targeted products late Wednesday or on Thursday.

A senior administration official, who spoke on condition of anonymity, said EU aircraft will face a 10% tariff and other products a 25% import tax. The tariffs are intended to pressure the EU into dropping its subsidies for Airbus.

President Donald Trump called the WTO ruling a “big win for the United States“ and asserted that it happened because WTO officials “want to make sure I’m happy.”

“The WTO has been much better to us since I’ve been president because they understand they can’t get away with what they’ve been getting away with for so many years, which is ripping off the United States,“ Trump said at a joint White House news conference with President Sauli Niinisto of Finland.

The move escalates uncertainty for the U.S. and global economies at a time when Trump’s trade war with Beijing is weighing heavily on businesses, particularly manufacturers.

The United States had prepared for Wednesday’s ruling and already drawn up lists of the dozens of goods it would put tariffs on. They include EU cheeses, olives, and whiskey, as well as planes, helicopters and aircraft parts in the case – though the decision is likely to require fine-tuning of that list if the Trump administration agrees to go for the tariffs.

The tariffs can take effect no earlier than mid-October because a key WTO panel needs to formally sign off on them first. But they will likely have an impact on agricultural and other sectors of the European economy, at a time when other tariff battles have dented global trade growth.

Stock markets around the world, which were already down on concerns for the world economy, added to their losses on the news.

Wednesday’s award follows a WTO ruling in May 2018 that the EU had illegally helped Airbus with subsidies.

However, it does not end the long-running trans-Atlantic dispute over aircraft: WTO arbitrators are expected to rule next year about how much the EU can impose in tariffs following a separate decision that went against Boeing.

The EU’s top trade official said the bloc would prefer to reach a settlement with the United States to avoid a tariff war – but it will respond if U.S. President Donald Trump imposes new duties on EU products.

EU Trade Commissioner Cecilia Malmstrom said a tariff war “would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time.”

“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 to do the same,“ she said.

Italian Foreign Minister Luigi Di Maio, who was meeting with U.S. Secretary of State Mike Pompeo in Rome on Wednesday, vowed to “defend our businesses.” Italian wine and cheeses could face an impact from U.S. tariffs.

In an interview with the Italian newspaper La Stampa in Rome, U.S. Secretary of State Mike Pompeo said, “I’m very hopeful that we can get an outcome that works for everyone, that’s consistent with making sure that every American business is treated fairly.”

The award is the largest among about two dozen at the WTO since it was created nearly 25 years ago.

Unlike Trump’s unilateral tariffs on billions of dollars-worth of steel, aluminum and other goods from China, the EU and elsewhere, the retaliatory tariffs authorized in the Airbus case have the stamp of approval from the WTO, an organization that he has repeatedly criticized.

German Chancellor Angela Merkel acknowledged “we have lost a matter under WTO law.“

“This means it’s not some sort of arbitrary question but a verdict according to international law that now weighs on Airbus, one must sadly say,” she told reporters in Berlin. “We have to see how the Americans will react now.“

The WTO in May 2018 found that EU “launch aid“ for Airbus had resulted in lost sales for Boeing in the twin-aisle and very-large-aircraft markets. The ruling centered on Airbus’ 350XWB – a rival of Boeing’s 787 – and the double-decker A380, which tops the Boeing 747 as the world’s largest commercial passenger plane.

The case itself dates to 2004, a testament to the plodding and thorough rhythm of the Geneva-based trade body.

Rod Hunter, a partner at the law firm Baker McKenzie and a former White House economic official, saw three possible outcomes: The EU can end the offending subsidies to Airbus, decide to absorb the tariffs or try to reach a negotiated settlement with the Trump administration.

Given Trump’s enthusiasm for tariffs, Hunter said, it’s unclear what the president and his trade negotiator, Robert Lighthizer, really want: “Does he want to set up a negotiation to get a resolution or is it just tariffs for tariffs’ sake?”

The $7.5 billion represents a fraction of EU exports to the United States, which last year came to $688 billion.

But the specter of more tariffs comes at a sensitive time. Trump’s aggressive use of tariffs – especially against China – has shaken financial markets, hobbled global trade and hurt manufacturers paralyzed with uncertainty about where to buy supplies, locate factories and sell their products. On Tuesday, a private index of U.S. manufacturing output dropped to the lowest level since the recession year 2009.

“The market effect could be larger than just the impact on the European exports and their U.S. customers,” Hunter said.

Gary Hufbauer, senior fellow at the Peterson Institute for International Economics and a former U.S. trade official, cast doubt on prospects for a EU-US trade deal that will ease tensions and ward off tit-for-tat tariffs, at least before the 2020 U.S. presidential election. “Election years are bad for trade deals,” Hufbauer said.

The WTO is already examining a dozen cases involving U.S. tariffs and countermeasures brought by its trading partners over the administration’s steel and aluminum tariffs. Trump has insisted the move is needed to protect U.S. national security interests, but the Europeans claim it is simply protectionism and breaks global trade rules.

The EU has introduced “rebalancing“ tariffs on about 2.8 billion euros ($3 billion) of U.S. steel, agricultural and other products. Trump has also threatened to slap duties on European automakers.