The US-EU trade row broke out while the US is in a trade war with China and the UK moves closer to the Brexit deadline. Multilateral trade frameworks, particularly the WTO, are being fractured.
The shadow of a tariff fight
Early this month the WTO ruled that the EU gave illegal subsidies to aircraft maker Airbus, capping a 15-year trans-Atlantic dispute over illegal subsidies. But it’s not a complete victory for Boeing. The EU has sued the US for giving illegal subsidies to Boeing.
Boeing is in the worst crisis of its 103-year history after 2 tragic crashes of its giant 737 Max aircraft. Some former Boeing customers switched to Airbus and are now facing higher costs because of new US tariffs. The WTO is set to rule on Boeing’s subsidies early next year, at which point the EU might be authorized to strike back with tariffs of its own.
The WTO’s recent ruling might have unexpected consequences. The prospect of 7.5 billion USD annually in tariffs raises fears of an all-out trade war leading to global economic chaos.
The US Trade Representative Office says the US will begin applying WTO-approved tariffs on certain EU goods beginning October 18th, targeting France, Britain, Germany, and Spain, the 4 countries mainly responsible for Airbus subsidies. A tariff of 25% will be imposed on the UK’s agricultural products, Scotch whisky, wool and cashmere sweaters, Germany’s coffee and machines, France’s wine and olives, and Spain’s olives. The EU says it will retaliate equivalently. Brussels has prepared a tariff list of American goods worth 20 billion USD.
No one will benefit
At trade dispute between the US and the EU was foreshadowed by Trump’s “America First” policy. Economists say it’s difficult to say who will win, but the trans-Atlantic dispute will damage both sides. It will weaken America’s international groups, narrow export markets, and increase international competition. EU countries will lose half a billion to 1 billion USD a year in export revenue. Negotiations for a new free trade deal between the US and EU will be seriously damaged and the global economy as well.
Last week the WTO halved its global trade growth forecast. The Organization for Economic and Cooperation Development (OECD) warns that escalating trade disputes will increase pressure on business’ confidence, cause policy instability, and place financial markets at risk.