World Trade Organization authorizes US tariffs on $7.5 billion in goods from EU over Airbus subsidies
The World Trade Organization handed down a ruling yesterday that because the European Union subsidized Airbus in its competition with Boeing, the United States could impose retaliatory tariffs on $7.5 billion in E.U. exports to the United States. The Wall Street Journal reports on the retaliatory tariffs being planned:
The Office of the U.S. Trade Representative said it would impose the tariffs starting Oct. 18, with 10% levies on jetliners and 25% duties on other products including Irish and Scotch whiskies, cheeses and hand tools.
As a scotch-drinker, I am not happy about this, and I wonder how many of us are presumed to be driven to bourbon or rye by the extra cost. Cheese and hand tools may be substitutable, but when it comes to spirits, tastes tend to be pretty well fixed.
The plain fact is that both the U.S. and the E.U. subsidize airliner manufacturing, and the E.U. has a complaint pending at the WTO — filed nine months after Boeing's — that will result in a judgment in the coming months. The E.U.'s complaints center on defense work being used to subsidize development and manufacturing costs, while the U.S. complains about financing purchases and cost guarantees that limit the risk of spending money on development of new models. Both parties must face the fact that China and Russia are eager to crack the global market for jetliners and are in a position to benefit from mutual tariff escalation between the E.U. and U.S.
Meanwhile, U.S. airlines slated to accept delivery of Airbus planes must worry about a sudden increase in their costs. The Wall Street Journal provides this chart of expected deliveries, making it clear that Delta, the most profitable American carrier, would be impacted the hardest:
Meanwhile, Boeing has a lot of deliveries to the E.U. pending that could be hit by tariffs when the WTO hands down its decision in about nine months:
The orders shown for Ireland are not for Aer Lingus, the national carrier that uses an all-Airbus fleet. Two hundred ten thousand seven hundred thirty-seven Max aircraft are on order from Ryan Air, the discount carrier based in Ireland but operating throughout Europe, and 92 Max aircraft are slated for Norwegian Air, which domiciles one of its operating companies in Eire.
For people who worry about a trade war with China, this spat with the E.U. could be more than icing on a cake.