Europe just hit the US with $4 billion in new tariffs, but Biden could reduce tensions

The World Trade Organization last month cleared the way for tariffs to be imposed on American exports including aircraft when it delivered a ruling in favor of the European Union as part of a long-running dispute over US subsidies to Boeing (BA) and EU aid to rival planemaker Airbus (EADSF). The European Commission said the tariffs will come into effect on Tuesday.

The WTO decision followed a similar award made last year in favor of the United States, which resulted in the Trump administration imposing tariffs on European goods including civil aircraft, Parmesan cheese, French wine and Scotch and Irish whiskies. European officials made clear on Monday they would prefer for both sides to drop the measures.

Tariffs act as a tax on exports, and are either absorbed by producers in the form of reduced profits, or passed on to consumers in higher prices.

“We have made clear at every stage that we want to settle this long running issue,” executive vice president of the European Commission Valdis Dombrovskis told journalists at a press conference. “Regrettably, due to lack of progress with the US, we had no other choice but to impose these countermeasures,” he added.

Additional tariffs of up to 15% on aircraft will deal yet another blow to Boeing, which is already contending with a collapse in sales amid aviation’s worst ever crisis and ongoing struggles relating to the troubled 737 Max. Other US goods to be taxed include ketchup, nuts, wheat, cereals and sunflower oil.

Will Biden boost transatlantic trade?

The EU decision to move ahead with tariffs is not expected to escalate the transatlantic trade tensions that flared up under US President Donald Trump. That’s because the tariffs were expected, and President-elect Joe Biden is likely to take a more conciliatory approach to America’s relationship with allies such as Europe.

“We would not be surprised if the US and the EU defuse or even settle [the Airbus-Boeing] dispute shortly after the Biden administration takes office on 20 January 2021,” Holger Schmieding, the chief economist at Berenberg, said in a research note on Monday. In a report published last week, Schmieding said that under Biden the two sides may even look to do a free trade deal.

This could be a “somewhat skinny version of the Transatlantic Trade and Investment Partnership which the EU and US had discussed until Trump pulled out of the negotiations right after taking office in 2017,” he explained.

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David O’Sullivan, who was EU ambassador to the United States from 2014 to 2019, echoed these sentiments. Writing in The Irish Times on Monday, he said that Biden’s arrival in the White House “offers a unique opportunity to reboot the transatlantic alliance,” which suffered under Trump.

A “helpful start” to finding a new balance in the trading relationship would be “ending the Airbus-Boeing dispute and eliminating tariffs on industrial goods,” he added.

European Commission President Ursula von der Leyen appealed to the historic ties between the European Union and the United States in a statement on Saturday in which she congratulated Biden on his victory and called for a “renewed partnership.”

“The European Union and the United States are friends and allies,” she said, adding that the European Commission “stands ready to intensify cooperation with the new administration,” including on issues such as the pandemic and climate change.

Biden has already pledged to rejoin the Paris climate accord and the World Health Organization, signaling that he plans to adopt a more outward looking approach to US foreign policy than his predecessor.

But not all of the changes that have taken place under Trump when it comes to international trade are likely to be reversed under Biden. That’s because there has been a general shift away from trade liberalization over the past several years, as highlighted by Brexit and trade spats elsewhere, such as between China and Australia.

In line with this shift, “Biden may also pursue trade policies more focused on protecting existing jobs at home than on opening up new opportunities through freer trade,” according to Schmieding.

“Trade liberalization [in the United States] is largely off the agenda for now,” said managing director of Eurasia Group’s US practice Jon Lieber in a briefing last week. “Trade enforcement could certainly be a thing that you see a lot more of coming out of the US,” he added.

— James Frater contributed reporting.

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