EU-U.S. Trade War Escalates Over Disputed Aviation Subsidies

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The European Union is preparing retaliatory tariffs against the U.S. over subsidies to Boeing Co., significantly escalating transatlantic trade tensions hours after Washington vowed to hit the EU with duties over its support for Airbus SE.

The two sets of punitive measures are the latest twists in a 14-year-old dispute that the U.S. and EU have fought at the World Trade Organization, with each side accusing the other of illegally subsidizing their main aircraft makers. President Donald Trump's administration on Monday said it would impose tariffs on $11 billion in imports from the EU because of the European aid.

The Office of the U.S. Trade Representative said that EU support for Airbus had caused “adverse effects” when announcing the new measures, which would target European goods including jetliners, cheese, wine and motorcycles. The EU called the sum cited by the USTR “greatly exaggerated” and said preparations were underway to hit back. While the EU hasn't disclosed the amount of American goods it would target, Airbus said the bloc would proceed with “far larger countermeasures against the U.S.”

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The heightened tensions come as the 28-nation EU works toward approving a mandate for the European Commission, the bloc's executive arm, to negotiate cuts in industrial tariffs with the Trump administration. The new tensions may complicate those efforts, which are part of European attempts to ward off American threats of separate duties on foreign autos and car parts.

European officials underscored the option of reaching a negotiated solution with the U.S. that would avoid an escalation with tit-for-tat tariffs.

“Whether the tariffs will enter into force will also depend on whether there will be an agreement between the EU and the U.S. about the treatment of subsidies for the aviation industry,” a German Economy Ministry spokeswoman said in an emailed statement. “The EU is open to the U.S. offer for dialogue in order to reach a fair solution.”

The threatened American tariffs, which come after the WTO ruled in May that Airbus had received illegal funding for its A380 and A350 models, costing Boeing sales, would be implemented only after the WTO gave the final go-ahead this summer, the administration said, marking a rare show of faith in an institution that Trump himself has assailed.

Airbus said in a statement that the U.S. tariff threat was “totally unjustified” and that it had taken “all necessary measures” to comply with the WTO ruling regarding illegal aid.

Shares of Toulouse, France-based Airbus fell as much as 2.3 percent, the biggest drop in 2 1/2 weeks, before trading 1.8 percent lower as of 2:27 p.m. in Paris. Aerospace suppliers including Rolls-Royce Holdings Plc and Meggitt Plc were also priced lower.

Escalation

The proposed measures are relatively minor compared with the U.S.'s ongoing trade war with China, in which the two sides have imposed tariffs on about $360 billion of each other's goods in the past nine months. But they mark a significant escalation in tensions with the EU, which has implemented retaliatory duties on 2.8 billion euros ($3.2 billion) of U.S. imports following Trump's trade restrictions on foreign steel and aluminum.

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Some EU members, led by France, are already skeptical of the value of negotiations with the U.S., which were agreed to last July in a bid by the EU to avoid auto tariffs Trump has threatened. Furthermore, a draft of the mandate seen by Bloomberg specifically gives the EU an opt-out if the U.S. were to impose new tariffs on the bloc.

“It's in the interests of the U.S. and the EU to find a friendly accord on the issue of penalties in the airplane sector,” French Finance Minister Bruno Le Maire told reporters in Paris on Tuesday. “When I see slowing world growth, I don't think that we can afford a trade war, even if it's just in one industrial sector.”

Robert Lighthizer, the U.S. trade representative, said in a statement on Monday night that the U.S. had lost patience with what is now one of the WTO's longest running sagas.

“This case has been in litigation for 14 years, and the time has come for action,” he said in the statement.

Yet he also signaled that the administration wanted to see an end to the EU subsidies in question, which Boeing and the U.S. claim give Airbus an unfair advantage in the highly competitive passenger aircraft market internationally.

“Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft,” he said. “When the EU ends these harmful subsidies, the additional U.S. duties imposed in response can be lifted.”

In a statement, Boeing said the company “supports the U.S. trade representative and his team in their ongoing efforts to level the playing field in the global aircraft marketplace.”

The proposed tariffs come nearly 15 years after the U.S. first complained to the WTO that Airbus had widely benefited from billions of dollars in illegal subsidies. A countersuit by the EU is still winding its way through the trade court, which found last month that about $325 million in tax incentives offered by Washington state to Boeing were unlawful.

--With assistance from Richard Bravo, Julie Johnsson, Christopher Jasper and Birgit Jennen.

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net;Kim Chipman in Chicago at kchipman@bloomberg.net;Shawn Donnan in Washington at sdonnan@bloomberg.net

To contact the editors responsible for this story: Kasia Klimasinska at kklimasinska@bloomberg.net, Richard Bravo