Boeing-Airbus and the folly of Trump’s theory of tariffs

The Trump administration likes to say that tariffs give the United States “leverage” over other countries. If this were true, the Boeing-Airbus dispute should be Exhibit A. But it isn’t. On the contrary, the Boeing-Airbus dispute shows the folly of Trump’s theory of tariffs.

The United States is currently retaliating for European subsidies to Airbus. It’s doing this with the approval of the World Trade Organization (WTO). The tariffs, which are authorized up to 100 percent on $7.5 billion of trade, range from 10-25 percent on agricultural and other European Union (EU) imports. And so far, there’s not a thing Europe has been able to do about it.

Think about that for a moment. This is a one-sided WTO-legal tariff salvo that has been going on since December. So, where’s the leverage? 

You’d think the Trump administration would have been busy making demands of the EU while Brussels took its punishment. But that’s not happening. Washington won’t negotiate until Europe hits back with tariffs of its own. That’s not leverage, that’s mutually assured destruction.

The betting had been that the WTO would settle on a figure for European retaliation this past June. But now, given the COVID-19 lock-down, the WTO says it needs until the fall to finish its work. Europe isn’t pleased about this, and may not wait. 

Europe has been itching to retaliate for months. It has a “hit list” that is eleven pages of tariff codes targeting U.S. exports ranging from cheddar to lobsters to tractors. Brussels says it is weighing its options to implement those tariffs now. 

One option is to follow through on its threat to use a case that the WTO had previously authorized for retaliation. The case, which centered on a U.S. tax scheme for exporters, came in around $4 billion. Last fall, Brussels proposed using this to top up civil aircraft if the WTO gave Europe less than the $7.5 billion it gave the U.S. With the WTO’s delay, Brussels might use this, instead, to bridge the gap.

A second option is for Europe to go unilateral. Last fall, the EU revamped Regulation No. 654/2014, its version of the U.S.’s Section 301. This revamp wasn’t about civil aircraft. Rather, it was a way to work around the “legal void” created by the Appellate Body crisis, when it ceased operations in December. Instead of waiting on an appeal that can’t be heard, the revamp gives the EU a means of hitting back in a way that would have otherwise violated its WTO obligations. 

Europe’s regulation says, among other things, that “the Union should be in a position to react swiftly and in a flexible manner in the context of the procedures and deadlines set out by the international trade agreements which it has concluded.” Brussels was surely thinking about a foreign country’s recalcitrance when it wrote this, not WTO delays owing to COVID-19. Still, it isn’t far-fetched to imagine Europe acting on these words. 

Then there’s this. The Trump administration claims that the United States is now fully compliant with the WTO on Boeing subsidies. This type of self-assessment didn’t work when Europe tried it in a dispute with the U.S. and Canada over hormone-treated beef, and it won’t work now in civil aircraft. But to file a new case on U.S. compliance, which would invariably be appealed, is to raise the prospect of falling into the legal void.

None of this is straightforward. No country has ever sought to reactivate a WTO “win” to retaliate. Trying this, or going unilateral more generally, will be met by U.S. litigation at the WTO. But this litigation, too, will fall into the legal void left by the Appellate Body’s collapse. 

The U.S. is retaliating for Airbus subsidies with large, WTO-legal tariffs, and Europe isn’t hitting back. Under these circumstances, you’d expect President Trump’s tariffs to give the U.S. considerable leverage over Europe. Instead, Boeing-Airbus reveals the poverty of this strategy. 

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.