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U.S. plans E.U. import tariffs of $7.5 billion after WTO ruling

The Trump administration is preparing to impose tariffs on E.U. imports worth $7.5 billion from gouda cheese to single-malt whiskey and on large aircraft beginning on October 18 to retaliate against unfair European Union subsidies for Airbus aviation giant.

The latest escalation in the tariffs of the administration will open a new chapter in trade wars that will depress the world economy and increase fears of a global recession. This comes just as the Trump administration is trying to find a resolution to its war with China on high-stakes trade.

Wednesday, the administration earned a green light from the World Trade Organization for its new import taxes, which ruled that the United States could enforce the tariffs as retaliation for illegal aid given to Airbus by the 28-country EU in its rivalry with its American competitor Boeing.

A 15-year fight over EU subsidies for Airbus culminates in the WTO announcement.

A 10 per cent import tax will be imposed on EU aircraft; other products on the list will be hit with tariffs of 25 per cent. The administration insists that it has the authority to raise tariffs whenever it wishes or later in its list of products.

President Donald Trump called the WTO decision a “big win for the United States” and said it was because WTO officials “want to make sure I’m satisfied.” “The WTO has been much better for us since I became president because they realise that they can’t get away with what they’ve been getting away with for so many years that’s taking away from the United States,” Trump said at a White Ho joint meeting.

In addition to their losses on the media, stock markets around the world, which were already down on fears for the global economy.

Wednesday’s award follows a May 2018 WTO decision that the EU had unlawfully helped Airbus with grants. However, it does not put an end to the long-running trans-Atlantic aircraft dispute. Following a previous ruling against Boeing, WTO arbitrators are expected to rule next year on how much the EU may impose on tariffs.

The EU’s top trade official said the bloc would prefer to negotiate with the U.S. to prevent a tariff war but would respond if Trump imposed new duties on EU goods.

Speaking after the WTO ruling on Wednesday but before the Trump administration announced the new tariffs, EU Trade Commissioner Cecilia Malmstrom said that a tariff war “would only harm businesses and citizens on both sides of the Atlantic and harm global trade and the wider aviation industry at a sensitive time.” “If the US decides to impose authorised countermeasures on the WTO, it will be appropriate.

Italian Minister of Foreign Affairs Luigi Di Maio, who spoke with the United States. State Secretary Mike Pompeo promised to “defend our companies” in Rome on Wednesday. Italian wine and cheeses could face an impact from U.S. tariffs.

Unlike Trump’s trillion-dollar unilateral tariffs on steel, aluminium and other products from China, the EU and elsewhere, the retaliatory tariffs approved in the Airbus case were marked with WTO approval, an agency he has attacked frequently.

German Chancellor Angela Merkel admitted that “we lost a matter under WTO law.” “It means it’s not an arbitrary issue, but an international law decision that weighs on Airbus now, it’s a sad thing to say,” she told reporters in Berlin. “We need to see how the Americans are going to react now.” In May 2018, the WTO found that EU support to Airbus had led to a loss of revenue for Boeing in the twin-aisle and very large aircraft markets. The decision focused on Airbus ‘ 350XWB, a Boeing 787 counterpart, and the double-decker A380, which tops the Boeing 747 as the largest commercial passenger aircraft in the world.

Airbus and Boeing dominate the large airliner market, and this year Boeing’s shipments plunged after two deadly crashes due to the grounding of its 737 Max plane. This limits the options available to airlines seeking to expand their fleets to accommodate increased air travel.

U.S. carriers have protested against the tariffs they import from Europe on aircraft and parts and have mobilised supporters in Congress. Thirty-four Congressional Republicans and Democrats expressed opposition to tariffs on imported aircraft and components in a letter this week to Trade Representative Robert Lighthizer. And they indicated that they apply only to future orders if the tariffs are implemented.

The lawmakers acknowledged that it is difficult for airlines to modify or cancel aircraft orders because of aircraft orders typically last years. Tariffs on European aircraft will increase the cost of these aircraft and they would do nothing to allow the EU to put an end to illegal support, “they wrote. In comparison, they said it would give airlines an incentive to buy U.S.-made aircraft in imposing tariffs only on potential EU orders.

The case itself dates back to 2004, a testament to the Geneva-based trading body’s plodding and detailed pace.

Rod Hunter, a partner at the Baker McKenzie law firm and a former economic officer at the White House, saw three possible outcomes: the EU could end offending Airbus subsidies, agree to bear tariffs, or try to reach a negotiated settlement with the Trump administration.

“We expect to enter into negotiations with the European Union to resolve this issue in a way that will benefit American workers,” Lighthizer said in a statement. “The $7.5 billion represents a fraction of EU exports to the United States, which last year amounted to $688 billion.

But at a sensitive time, the possibility of more tariffs arrives. The aggressive use of tariffs by Trump, especially against China, has rattled financial markets, hobbled global trade, and hurt manufacturers paralysed with confusion as to where to buy supplies, locate factories, and sell their products. A private index of U.S. manufacturing output fell to its lowest level on Tuesday since the 2009 recession.

“The effect on the market could be greater than the impact on European exports and their U.S. customers,” said Hunter.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics and a former U.S. trade official, raises doubts about prospects for an EU-U.S. trade deal that will ease tensions and fend off tariffs, at least before the U.S. presidential election in 2020.

“Trade deals are terrible for election years,” Hufbauer said.

The WTO is already investigating a dozen cases involving U.S. tariffs and countermeasures brought over the steel and aluminium tariffs of the administration by its trading partners. Trump claimed that the change was necessary to protect U.S. national security interests, but Europeans argue that it is protectionism and breaks the rules of global trade.

The EU has introduced U.S. steel, agricultural and other products to “rebalance” tariffs at about € 2.8 billion ($3 billion). Trump also threatened to slap European car manufacturers’ duties.

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