Just as the US-China trade talks are set to resume at the highest level, the WTO has made a second front in the global trade war far more likely, when moments ago the World Trade Organization gave President Trump a green light to impose tariffs on as much as $7.5 billion worth of European exports annually in retaliation for illegal government aid to Airbus SE.
- WTO ON WEDNESDAY ISSUED RULING ON 15-YEAR-LONG U.S. TRADE CASE VS. AIRBUS
- WTO SAYS U.S. CAN RETALIATE AGAINST $7.5B IN EU GOODS A YEAR
- U.S. EXPECTED TO IMPOSE TARIFFS ON EU BEFORE NEGOTIATING SETTLEMENT
- U.S. HAS RIGHT TO RETALIATE FOR ILLEGAL EU SUBSIDIES TO AIRBUS -WTO
The decision represents one of the last hurdles before the U.S. can announce which products from the European Union it will target with tariffs selected from an initial list that includes:
- Airbus planes and parts
- Wine and spirits produced by LVMH, Remy Cointreau SA, Pernod Ricard SA and Diageo PLC
- Leather goods manufactured by Christian Dior SE and Hermes International
The new tariffs can take effect after the WTO adopts the report, which is expected to happen at a meeting in Geneva this month. According to Bloomberg, the award is the largest in WTO history, and is nearly twice as large as the previous record of $4.04 billion set in 2002.
More importantly, the long-awaited ruling marks a milestone in the WTO’s longest-running dispute that will further test transatlantic relations which have deteriorated under Trump’s “America First” approach to international ties, with tariffs now virtually assured. It’s also an example of Trump getting a favorable ruling from an organization he has threatened to pull out of.
The development is terrible news for Europe, which is effectively already in a recession with European manufacturing contracting sharply as a result of the ongoing U.S. trade war with China; any wider flareup of tit-for-tat tariffs with Europe will further threaten the global economy and accelerate Europe's contraction.
Not coincidentally, just one day earlier, on Tuesday, the WTO cut its own trade growth forecast for this year to the weakest level in a decade, warning against a “destructive cycle of recrimination", a cycle which it itself ironic stoked just one day later.
As Bloomberg adds, the Trump administration is considering a "particularly damaging" trade weapon known as “carousel” retaliation, which would enable the U.S. to regularly shift around the targeted goods, people familiar with the deliberations said last month. That would increase trade uncertainty and pain for European businesses.
Meanwhile, the EU warned it would retaliate immediately against against any Airbus-linked tariffs when the WTO rules early next year on the bloc’s dispute over U.S. subsidies to Boeing Co., according to European Trade Commissioner Cecilia Malmstrom.
“The mutual imposition of countermeasures, however, 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,” Malmstrom said, adding that the bloc is ready to work with the U.S. on a “fair and balanced solution for our respective aircraft industries."
Ironically, as Boeing suffers over the indefinite grounding of its 737 MAX planes, the latest twist could further impact the US aerospace industry: Airbus warned in a statement that tariffs on its aircraft and components would come as a blow to the U.S. aerospace industry, with some 40% of its procurement coming from American suppliers.
Airbus also urged the Trump administration to take account of the forthcoming WTO decision on Boeing, saying those reciprocal tariffs could exceed the value of the U.S. sanctions.
Instead, CEO Guillaume Faury laid out his preferred solution to an all out tariff war: a negotiated settlement to the dispute. Good luck with that.