EU-US trade war: Will Trump take advantage of WTO’s decision leading to ominous economic growth?

G20 summit in Osaka, Japan
Date: 27/06/2019. Location: Japan, Osaka
© European Union, 2019. Source: EC – Audiovisual Service. Photographer: Etienne Ansotte

The World Trade Organisation (WTO) is going to back up the US to impose tariffs on EU products over the Airbus case where the aerospace firm received illegal subsidies by EU governments. Thus, the US President Donald Trump will have the upper hand and either impose billions of tariffs or bargain a better trade deal with the EU.

On the other hand, the EU has also filled a case under WTO and waits to see the amount of tariffs that the bloc can impose to the US as the latter provided favorable contract terms and tax breaks to Boeing hurting Airbus sales. However, this opportunity will be handled to the EU in 2020.

In the meantime, WTO, the Geneva-based body, lowered the global outlook yesterday ahead of the trade tensions; clearly revealing an ominous future where trade conflicts are imminent to affect the world economies.

Background

Back in 2004, the US filed a case with the WTO arguing that Airbus had received illegal subsidies of 19,4 billion euros from the EU member states. The Old Continent did the same by challenging the US government support to Boeing by Federal, State and local authorities, under the so-called US Foreign Sales Corporation Scheme. Particularly, EU claimed that the “trade-distorting” subsidies in the US mainly for its research and development projects reached the amount of 23 billion dollars.

During the fifteen years’ time, the WTO has ruled that both the US and EU have unfairly subsidized their aircraft makers. Thus, WTO is about to decide this week the amount of tariffs that the US can impose to the Union with the most probable to be 7,5 billion dollars’ worth of EU goods according to Reuters. As far as the EU dispute against US is concerned, the amount is yet to be specified in the beginning of 2020.

US has a head start

Donald Trump administration has already created a list of products that are set to be targeted once WTO finalises the amount. This list includes a wide variety of European products, including helicopters, airplane fuselages, Parmesan cheese, olives, wine, handbags, sweaters, glassware, clocks, Irish and Scotch whisky, and copper alloys.

The US President seems quite decisive to follow the hard way and has a head start in this trade war as the WTO will decide firstly on the Airbus case. In detail, Donald Trump had twitted some months ago that: “The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!” That clearly shows that it will be at least very harsh to persuade the US government not to impose tariffs on EU products. Time is on the side of the United States which has the advantage to make a favorable deal with the EU.

EU response

The bloc responded that will have to be prepared to react if the US decides to impose tariffs on EU goods. More specifically, the EU Trade Commissioner Cecilia Malmstrom told at a news conference yesterday: “We are exploring all kinds of areas where we could react, but until and if the American tariffs kick in we are prioritizing a negotiated solution. The EU will not do something that is not compliant with the WTO.” Furthermore, the next EU Trade Commissioner Phil Hogan mentioned during the European parliamentary hearing in Brussels that Europe “has to stand up for itself” and that the US “is not yet in a position to engage on proposals to end aircraft subsidies.”

Constructive Dialogue or trade war?

The US President and his Make America Great Again (MAGA) administration have caused economic aggressive turbulences to the global economy. The White House doesn’t seem to change its policy, especially on trade, targeting all countries with punitive tariffs. Will the US be hitting the EU hard with billions of tariffs or begin a constructive dialogue in order to be able to find common grounds bringing an end to this long-standing dispute?

The US stance has shown till now that the EU-US trade dialogue is very complicated with both parties to struggle to come to a common agreement. Therefore, it is not bizarre to understand why the WTO cut yesterday its trade growth forecast and expects it to increase by 1.2% this year, compared with its April estimate of 2.6%.

The possibility of a mutual EU-US agreement is low but that could alter if both parties focus on their economic prosperity.

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