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U.S. Threatens More Tariffs Over Airbus Dispute
Earlier in the year, the United States won a key ruling against the European Union over unfair subsidies being given to Airbus. The World Trade Organization had ruled that the United States can go ahead and target the European Union with billions of dollars of punitive tariffs over a dispute alleging that subsidized loans for the Airbus A380 and A350 development were considered illegal assistance from European governments to Airbus.
The Office of the United States Trade Representative had prepared a list of EU products worth $25 billion that could be hit with tariffs, covering a broad array of products including olive oil, cheese, and alcohol. Airbus, of course. called for negotiations to resolve the dispute and said an all-out trade war would be a “lose-lose scenario for the whole industry.”
The U.S. stayed true with their statement to impose tariffs and on October 18 tariffs of 10 percent on civil aircraft exports and 25 percent on $7.5 billion worth of products mainly from France, Germany, Spain, and the United Kingdom went into effect. The countries targeted are the ones the United States accuses of being chiefly responsible for the subsidies to Airbus.
The EU was supposed to make appends and rectify the concerns the WTO had and subsequently satisfy the U.S. and have tariffs removed. However, in early December, the WTO rejected an EU appeal claiming that it had addressed these concerns.
This is also now triggering the USTR to consider tariffs of 100 percent across a broader range of products such as wine from any EU country. A separate tariff specifically for imports from France is also being considered by the U.S. in retaliation for a new digital-services tax imposed in Europe while the U.S. government states unfairly targets American technology companies.
Tariff on Airbus Aircraft
The 10 percent tariff on civil aircraft exports has gotten the attention of many. Planes are very expensive and increasing the cost by 10 percent is not insignificant. Delta Air Lines has a huge order backlog of 250 aircraft and while it’s not reasonably expected that the tariffs will go on forever, it will have an impact on at least some aircraft. Delta CEO Ed Bastian said “We do not believe any responsibility for the tariffs belong to Delta” and Delta “is not expecting to pay those costs” so Airbus is most likely going to eat the increased costs.
Airbus does have a production facility Mobile, Ala., however, it is nowhere near large enough to meet current demand in the United States. U.S. made Airbus aircraft would not be subject to the 10 percent tariff. A similar strategy was used with the Bombardier C Series aircraft which was subject to hefty tariffs when being imported from Canada. Airbus took a stake in the aircraft production and rebranded it as the Airbus A220 line and started making them in Mobile to sidestep tariffs.
While there is a lot of drama playing out, it is unlikely it will last for long. Boeing won’t have much to benefit from this situation since Boeing exports to Europe are expected to be higher than Airbus exports to the United States.
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