EU’s Next Move in Airbus-Boeing Feud Clouded by Pandemic

(Bloomberg) --

As the coronavirus pandemic sends the global economy into a swoon, Europe’s eye-for-an-eye strategy for managing a transatlantic dispute over aircraft subsidies could become collateral damage and hand the U.S. a negotiating advantage.

At issue is whether the European Union will have the political will to trigger planned tariffs against the U.S. over its illegal aid to Boeing. The 27-nation bloc is waiting for the World Trade Organization to set the ceiling on damages in a decision due in June.

In more normal circumstances, the political advantages of EU retaliatory duties would outweigh the economic costs. That’s because punitive import levies green-lighted by the WTO would let Europe use its well-honed ability to target American goods made in U.S. states that can swing elections and, in the process, defend global trade rules.

In the long-running transatlantic discord over government aid to plane manufacturers, another compelling political reason exists for the EU to pursue trade sanctions: The U.S. in October imposed duties on $7.5 billion of European goods in retaliation over unlawful subsidies to Airbus.

Not only did President Donald Trump’s administration ignore EU pleas to refrain from such action and focus instead on settling the matter at the negotiating table, it decided in February to raise the punitive tariff on Airbus aircraft to 15% from 10%. The increase took effect in mid-March.

In political terms, for the Europeans to negotiate an accord with the U.S. over aircraft subsidies while America has countermeasures in place and the EU doesn’t would be akin to one army in a war giving up its weapons before a cease-fire is agreed.

Enter the pandemic, which has inflicted massive damage on industries including aviation. As the U.S. and Europe unleash unprecedented economic stimulus, Boeing has sought a bailout and Airbus has urged authorities to support airlines and suppliers.

In that context, Europe might well reconsider the merits of imposing duties on billions of euros of American goods in the aircraft-subsidies feud simply because of the economic self-harm such a move would cause.

Trump himself has made any such European retreat even more politically tricky. The EU resents his 2018 decision to hit European steel and aluminum with tariffs based on national-security grounds and his lingering — if increasingly vague — threat to do the same against the bloc’s automotive goods.

One possibility: A European plan to forgo retaliation over unlawful subsidies to Boeing could be accompanied by a high-level plea from Brussels to Trump to scale back tariffs linked to Airbus. In the wake of Washington’s recent decision to let U.S. importers defer paying regular customs duties for three months as a result of the pandemic, a European request of that kind would look less fanciful.

On Tuesday, EU trade chief Phil Hogan expressed “hope” that both sides could reach a deal on aircraft subsidies before the WTO renders a verdict on damages in the Boeing case (while also saying “it’s slow, it’s technical” work).

More generally, Hogan said the EU and U.S. “should be working together in order to reduce tariffs, eliminate tariffs where possible” and to “reignite the global economy post the pandemic.”

Charting the Trade Turmoil

The U.K.’s status as an island nation would suggest it ought to get all the fish it needs. But Britons’ seafood diet is centered on haddock, cod and salmon, and they don’t eat much else from the sea. So serving up the traditional dish of fish and chips relies on imports, while the local catch tends to be exported, in particular crab, herring and langoustines. 

Today’s Must Reads

• Food agreement | A group of almost 50 governments is preparing to agree to ensure food supplies stay orderly and exercise restraint with any trade restrictions.
• Paper trail | The U.S. signaled it’s under no obligation to comply with certain WTO dispute rulings because the trade body’s appellate function is no longer operational.
• Bills to pay | Spain is considering pledging additional funds to help companies pay their suppliers on time, a move that aims to stave off the collapse of businesses struggling to survive.
• Empty shelves | Food rationing is the new reality for North American shoppers once spoiled for choice as retailers limit purchases ranging from milk to pasta sauce.
• Virus diplomacy | With a series of high-level summits, this was supposed to be the year of Europe-China diplomacy. Instead, Europeans are warning of a damaging rift.

Bloomberg Analysis 

• Splurge insufficient | A toilet-paper-led surge in supermarket sales has driven a record monthly rise in Australia’s retail trade,  but a recession remains the base case for Bloomberg Economics.
• Early measures | Germany — Europe’s biggest economy — is set to outperform but will still probably contract more than 5% in 2020.
• Use the AHOY function to track global commodities trade flows.
• See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
• Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

©2020 Bloomberg L.P.