EU Proposes Retaliatory Tariffs As Trade War Over Aircraft Subsidies Escalates

Update: President Trump has chimed in on twitter to gloat about the WTO's ruling, and warn the EU that the US will not allow itself to be "taken advantage of" any longer, echoing rhetoric he has employed in the trade spat with China.

So much for de-escalation...

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Investors who had hoped that President Trump's apparent willingness to cave on trade negotiations with China - despite all the tough talk from the administration - might spell an end to the global trade conflict are about to be sorely disappointed. Just hours after the US released a list of EU products targeted for additional tariffs following a favorable WTO ruling that aerospace company and Boeing arch-rival Airbus has benefited from anticompetitive government subsidies, the European Union has shot back with trade threats of its own.

Airbus

According to Bloomberg, the European Union reacted to threats of US tariffs on $11 billion of EU goods by preparing similar action against American products in a tit-for-tat case at the World Trade Organization concerning aid to Boeing Co.

"In the parallel Boeing dispute, the determination of EU retaliation rights is also coming closer and the EU will request the WTO-appointed arbitrator to determine the EU’s retaliation rights," the European Commission, the bloc’s executive arm, said in an e-mailed statement in Brussels.

"The commission is starting preparations so that the EU can promptly take action based on the arbitrator’s decision on retaliation rights in this case," it added.

The commission added that it believes the $11 billion figure proposed by the US is significantly higher than the WTO would allow.

"The EU is confident that the level of countermeasures on which the notice is based is greatly exaggerated; the amount of WTO-authorized retaliation can only be determined by the WTO-appointed arbitrator," the commission said.

"The figure quoted by the USTR is based on U.S. internal estimates that have not been awarded by the WTO."

Echoing its stance from 10 years ago, before the long-running battle over aircraft subsidies was put before the WTO by the US, the commission said it would be willing to negotiate a settlement with the US.

"The EU remains open for discussions with the US, provided these are without preconditions and aim at a fair outcome," the commission said.

As we pointed out last night, America's latest shot across the bow in its simmering trade spat with Europe - which has so far involved US tariffs on steel and aluminum, retaliatory EU tariffs on uniquely American products like bourbon and motorcycles, as well as Trump's looming threat to impose tariffs on EU auto imports - comes as i) Trump is reportedly preparing to fold in his trade war with China, punting enforcement to whoever is president in 2025, and ii) Boeing has found itself scrambling to preserve orders as more airlines cancel orders for Boeing 737s, or putting their orderbook on hold.

Whatever happens next, critics will decry the spat as yet another threat to global trade, which is coming at a particularly inopportune time, as it risks aggravating a "synchronized slowdown" in the global economy.

But somehow, we imagine, markets will find a way to read this as bullish, as every step back from the ledge will be heralded as yet another reason for 'trade-deal optimism'.