Talks or Tariffs?

By Ma Miaomiao

The Ethiopian Airlines Flight 302 crash in March that claimed 157 lives was a second blow for leading U.S. large aircraft maker Boeing as it was the second mishap featuring its Boeing 737 MAX 8 aircraft in eight months. The Lion Air Flight 610 that went down in Indonesia last October also featured the same model.

Since the crashes， which triggered a global grounding of the aircraft， Boeing is now caught in a battle of words between the United States and the European Union（EU）.

It started with a tweet by U.S. President Donald Trump on April 9. “The World Trade Organization fi nds that the European Union subsidies to Airbus has [sic] adversely impacted the United States， which will now put tariffs on $11 billion of EU products！”Trump tweeted.

In a countermeasure， the European Commission （EC） on April 17 published a list of U.S goods worth $20 billion， threatening to impose retaliatory tariffs over the U.S. Governments subsidies to Boeing.

In the view of Dong Yifan， a research fellow with the Beijing-based China Institutes of Contemporary International Relations， the U.S. move is nothing but a repetition of its old tricks.

Since the two sides have not made any progress in trade talks since last August， the United States turned to its old tactic of threatening additional tariffs to force the EU to return to the negotiating table， Dong said.

It is also a ploy to offset the market turmoil Boeing faces by attacking its competitor Airbus， Dong added.

Different views

The dispute over subsidies to Boeing and Airbus has been at the World Trade Organization （WTO） for years in arbitration， starting in 2004. Although the WTO said in its fi nal ruling on March 28 that the U.S. subsidy is illegal， the two sides interpreted it differently.

The United States called the ruling a“major win” since the WTO has rejected 28 other EU claims. It also said the fi nal ruling proves that the EUs subsidies to Airbus far exceed its subsidies to Boeing. Washington has seized that as an excuse to try to slap tariffs on EU goods covering Airbus planes as well as cheese， wine and motorcycles.

The EUs interpretation was that it had the “fi nal victory，” vindicating its “l(fā)ong held position that the United States has taken no steps to comply with WTO rules on [its] support to Boeing.”

Xin Hua， a professor with Shanghai International Studies University， called the U.S. action premeditated to force the EU to make concessions in bilateral trade and further open its markets to U.S. goods and services， since it is dissatisfi ed with the EU policies supporting the core industries in European countries.

However， the two sides wont let the threats develop into an actual trade war， Xin said， calling it a game of litigation within the WTO， which might be resolved by negotiation.

In fact， senior officials on both sides are reluctant to see the additional tariffs implemented and hope to fi nd a mutually benefi cial solution.

“Our ultimate goal is to reach an agreement with the EU to end all WTOinconsistent subsidies to large civil aircraft，”U.S. Trade Representative Robert Lighthizer said on April 8. “When the EU ends these harmful subsidies， the additional U.S. duties imposed in response can be lifted.”

On the other side of the Atlantic， European Commissioner for Trade Cecilia Malmstrom replied that Brussels doesnt want a tit-for-tat. She said， “While we need to be ready with countermeasures in case there is no other way out， I still believe that dialogue is what should prevail between important partners such as the EU and the United States， including in bringing an end to this long-standing dispute.” She added that “the EU remains open to discussions with the United States， provided they are without preconditions and aim at a fair outcome.”

The two sides hold different views on WTO regulations， Dong said. The EU respects the WTO dispute resolution system and its countermeasures were taken under the WTO framework. The Trump administration， on the contrary， has expressed disdain for the system and treated it with contempt while initiating trade frictions with many countries such as Canada， Russia and China.

Ironically， it praised the WTO ruling this time， using it as an excuse to threaten more tariffs. If the United States loses its patience again， it might become a real friction similar to the aluminum tariff case last year， Dong said.

Transatlantic trade talks

Negotiations will start following the European Councils vote on April 15 to do so. But the recent tariff dispute has cast a shadow over the prospect of the talks.

There are several structural differences between the two sides， Dong said. Malmstrom has made it clear that agricultural products would not be part of the talks. The EU has also stressed that trade talks will not get off the ground until the United States lifts its previous tariffs on the blocs metal exports. It said it would unilaterally suspend negotiations if the United States imposes any more trade restrictions.

Through the trade talks the EU expects to eliminate tariffs on its industrial products and remove regulatory barriers. But Trump has publicly threatened on many occasions to impose tariffs on EU cars exported to the United States. So it is uncertain how the two sides will bridge their differences.

The resources and energy invested in the negotiations may be limited. The United States is still negotiating with China and Japan， while the EU has its internal agenda such as the installation of a new EC and the election of the European Parliament. These may affect the continuity of the trade talks， Dong said.

France， the only EU member that voted against the trade talks， is concerned about the potential impact of the talks on the EUs agricultural market as well as its standards.

High levels of uncertainty

The WTO lowered its forecast for this years global trade growth to 2.6 percent from 3.7 percent on April 2， factoring in the rising trade tensions which emerged last year. WTO Director General Roberto Azevedo warned， “Trade cannot play its full role in driving growth when we see such high levels of uncertainty.”

Against this backdrop， Zhou Hua， a professor with the Shanghai-based Tongji University， said the disputes between the EU and the United States would have a domino effect， expanding negative impacts to other economies as well. The already slowing global growth will find it hard to withstand trade risks. A further deterioration in U.S.-EU trade relations or a tariff war would seriously undermine investor confidence and may worsen the world economy.

According to an analysis by the EC， a trade agreement between the EU and the United States to eliminate tariffs on industrial products by 2033 would increase EU exports to the United States by 8 percent， about 27 billion euros （$30.3 billion）， and U.S. exports to the EU by 9 percent， about 26 billion euros （$29.2 billion）. This may， to a certain degree， help solve the problems global trade faces.

Escalating trade frictions between the two sides will also affect the stability of transatlantic relations and their cooperation on international affairs， Wang Yong， a professor on international studies with Peking University， said.