Update: On June 14, 2021, the United States and the European Union (EU) agreed to suspend tariffs in the Boeing-Airbus trade dispute for an additional five years. Tariffs were initially suspended for a four-month period from March 2021 to July 2021.

summary

  • The United States and the European Union (EU) have agreed to suspend tariffs in the Boeing-Airbus trade dispute for four months.
  • The tariffs, which were in effect from October 2019 to February 2021, covered $ 12 billion in goods traded and cost the United States $ 1.6 billion.
  • The four-month suspension of these tariffs and a possible future repeal will increase economic cooperation between the United States and the EU, which could help counter China’s economic influence.
  • Other major trade tensions remain between the US and the EU that could offset the added benefit of repealing these tariffs.

introduction

On March 5, 2021, the United States and the European Union (EU) agreed to a four-month suspension of prices that they were originally imposed in retaliation for the subsidies they had granted to their respective competing aircraft manufacturers Boeing and Airbus. The announcement comes just days after the US and UK also agreed to suspend tariffs for four months stemming from the same dispute. Taken together, the tariffs covered nearly $ 12 billion in goods traded each year. The United States incurred a net additional cost of $ 1.6 billion as a result of the tariffs.

Due to the long and bitter nature of this trade dispute, retaliatory tariffs were chosen strategically to create economic damage and are not limited to the aviation industry. The complete suspension of these tariffs thus serves as a boost to many sectors of the economy. The suspension also raises hopes for improved US-EU trade relations, but other disputes remain that stand in the way of further cooperation on trade issues.

The Boeing-Airbus dispute

The dispute between Airbus and Boeing began in 2004, when the United States filed a complaint with the World Trade Organization (WTO) against the EU, which then filed its own complaint against the United States. The two alleged that the illegal government subsidies gave the other’s aircraft manufacturer an unfair competitive advantage in international transactions. In 2010, the WTO finally ruled that the EU and the US had engaged in illegal government subsidies. The US and EU challenged the rulings, but were unsuccessful in their appeals. In 2012, both sides affirmed that they were in full compliance. Unsurprisingly, perhaps, the two countries disputed their claims of compliance, starting a six-year legal battle.

In 2018, the WTO ruled that Airbus had continued its unfair trade practices and that Boeing had thus lost important sales. In response, the United States imposed tariffs on $ 7.5 billion worth of European goods. In 2019, the WTO also ruled that Boeing continued to receive illegal subsidies, and the EU imposed retaliatory tariffs on $ 4 billion in US goods in November 2020.

Economic impact of tariffs

The table below lists the approximate value of US imports subject to Boeing-Airbus tariffs. It also displays estimates of how much the United States has paid as a result of these tariffs.

Parts 1 and 19 are the only products related to aircraft. Parts 2 through 18 cover non-aeronautical goods, including but not limited to cheese, wine, scotch and seafood. Parts 2 through 18 represent approximately two-thirds of the affected goods. Tariffs have so far covered $ 7.7 billion in goods and cost the United States $ 1.6 billion.

Table 1: Total Cost of Large Civil Aircraft Tariffs under Section 301

Rate

Value of affected US imports

Tariff Tariff

Additional cost charge

Part 1

$ 2.3 billion

10 – 15%

$ 285.0M

Part 2

$ 20.8M

25%

$ 5.2M

Part 3

$ 340.3M

25%

$ 85.1M

Part 4

$ 470.8 M

25%

$ 117.7M

Part 5

$ 5.6M

25%

$ 1.4M

Part 6

$ 308.7M

25%

$ 77.2M

Part 7

$ 25.0 million

25%

$ 6.2M

Part 8

$ 25.6 million

25%

$ 6.4M

Part 9

$ 130.6M

25%

$ 32.6

Part 10

$ 1.1 billion

25%

$ 270.2 million

Part 11

$ 122.7M

25%

$ 30.7 million

Part 12

$ 889K

25%

$ 222K

Part 13

$ 325.1M

25%

$ 81.3M

Part 14

$ 550.2M

25%

$ 137.5

Part 15

$ 1.4 billion

25%

$ 355.4M

Part 16

$ 6.4M

25%

$ 1.6

Part 17

$ 3.2M

25%

$ 806K

Part 18

$ 280.9M

25%

$ 70.2 million

Part 19

$ 230.4M

25%

$ 34.6 million

Total

$ 7.7 billion

10 – 25%

$ 1.6 billion

One would hope that EU prices would drop enough that, when tariffs are added, the final price for US users remains unchanged. Unfortunately, prices tend to be sticky, at least in the short term. To the extent that prices have not adjusted since the tariffs went into effect in October 2019, US importers will likely bear the burden; a burden that adds to the woes of industries that may have been hit hard by the COVID-19 pandemic. The total abolition of these tariffs would therefore constitute an additional economic boost for various sectors of the economy.

An Excel file detailing the prices and the products concerned is available here.

A limited increase in economic cooperation between the US and the EU

The joint temporary tariff suspension linked to the Boeing-Airbus dispute marks the first major bilateral trade action between the Biden administration and the EU. The joint US-EU statement indicated the need to “lighten the burden on their industries and their workers.” He also indicated the need to curb “trade-distorting practices and the challenges posed by new entrants to the sector from non-market economies like China.” This note is important because better trade cooperation between the US and the EU is essential to counter China’s economic influence.

As the two sides agree to counter China’s growing economic influence, the US and the EU have other major trade disputes such as Section 232 aluminum and steel tariffs. The rationale for tariffs on steel and aluminum is largely the same as that set out in their agreement, to tackle unfair trade practices by China. Yet these tariffs must remain in effect for the near future and cost the US and the EU dearly. This ongoing dispute suggests that a four-month suspension at the end of a 16-year trade dispute will not be a panacea for US-EU trade relations.



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