Airbus-Boeing deal eases US-EU tensions but conflicts remain

Associated Press and Herald staff

BRUSSELS — The deal the United States and the European Union reached Tuesday to end their long-running rift over subsidies to Boeing and Airbus will suspend billions in punitive tariffs. It will ease trans-Atlantic tensions. And it will let the two sides focus on a common economic threat: China.

But the breakthrough still leaves some trade friction between the U.S. and the EU unresolved. Most prominently, President Biden kept in place import taxes that President Donald Trump imposed on European steel and aluminum, a move that infuriated some of America’s closet allies three years ago.

For now, Tuesday’s truce in the Boeing-Airbus dispute goes a long way toward repairing a huge commercial relationship — $933 billion in two-way trade last year despite the pandemic — that came under enormous strain during the Trump years. Among other things, the former president angrily charged the Europeans with using unfair trade practices to sell more products to the United States than they bought and of shirking their responsibility to pay for their own national defense.

No trade dispute between the two sides has raged longer than their aviation conflict. Since 2004, the U.S. and the EU have accused each other of unfairly subsidizing their aircraft-building giants — America’s Boeing and Europe’s Airbus. Over the past two years, the World Trade Organization, which adjudicates such disputes, declared both sides guilty. It allowed the United States to impose up to $7.5 billion in tariffs and the EU up to $4 billion’ worth.

The tit-for-tat duties victimized companies that have nothing to do with aircraft production, from French winemakers and German cookie bakers in Europe to spirits producers in the United States, among many others. Tuesday’s agreement brought a measure of relief to companies on both sides of the Atlantic.

“For about 20 years, we have been at each other’s throat,’’ U.S. Trade Representative Katherine Tai said. “We have been too busy fighting each other.’’

In a tweet on Tuesday morning, U.S. Rep. Rick Larsen, D-Everett and chairman of the House Aviation Subcommittee, called the announcement “good news for women and men who work at Boeing as it removes one uncertainty in the production of U.S. aircraft.”

In a White House news release, Jon Holden, the president of Everett-based District 751 of the International Association of Machinists and Aerospace Workers (IAM), said the union especially welcomes “long awaited efforts to coordinate with the EU in challenging China’s trade violations. As Boeing and Airbus shift production to China, it … is simply unacceptable for Boeing workers to have their jobs sacrificed to China and other countries like Mexico in the name of unfair global competition. Coordination between the U.S. and the EU to confront China’s trade challenges in aerospace is urgently needed.”

Said U.S. Sen. Maria Cantwell, D-Washington, in a statement released Tuesday: “Securing a level playing field for aerospace jobs is a big deal in the Pacific Northwest. Everyone should strive to play by market rules, not distort the market, and let the best product win.”

U.S. Sen. Patty Murray, D-Washington, agreed: “This is a positive development not just for Boeing and the thousands of aerospace workers who have directly suffered from this dispute and the EU’s illegal subsidies, but also many other industries across Washington state that have been caught up in the ensuing trade war.”

In March, weeks after Biden took office, the two sides agreed to suspend the tariffs. That suspension, which began March 11, was to last for four months. The agreement announced Tuesday will officially take effect July 11 and will put the tariffs on hold for five years.

“It’s obviously a good sign — they agreed to something,” said William Reinsch, a former U.S. trade official who is now an analyst at the Center for Strategic and International Studies.

The truce, he said, will add “an element of certainty and sanity’’ to trans-Atlantic trade.

But Reinsch notes that the two sides “kind of kicked the can down the road’’ by leaving unsettled some issues in the aircraft dispute, such as whether Airbus must repay the government subsidies it received over the years. Instead, the U.S. said in a fact sheet, the two sides had agreed to establish a group “to analyze and overcome any disagreements that may arise.’’

The deal might help solidify the duopoly of Airbus and Boeing, which together dominate the global market for airline jets. Both companies have struggled recently with declining orders and deliveries at a time when the pandemic devastated air travel and led airlines to cancel or delay purchases.

Tuesday’s agreement made clear that the United States and the EU recognize that Boeing and Airbus face an external threat far bigger than each other: As part of its aggressive drive to become the world’s dominant industrial power, China is intent on developing its own plane-making industry with heavy government support.

“It will be a classic Chinese game plan,” Reinsch said. The government in Beijing will “force all the Chinese airlines to buy theirs. They’ll create a market. Their planes will get better, and once they’ve gotten better and cheaper, they’ll start flooding the global market.”

The U.S. and EU have agreed to work together to counter Beijing’s efforts to obtain foreign aviation technology. They plan to take joint action against unfair trade practices that appear intended to give Chinese plane manufacturers unfair advantages.

Richard Aboulafia, an aerospace analyst with Teal Group, suggested that the agreement will help the U.S. and Europe pivot to present a united front against China. He noted that Chinese airlines delayed deliveries from Boeing and Airbus during the pandemic but continued to take deliveries from China’s own aircraft manufacturer, COMAC.

“The Chinese want to close their market and go their own way, and the biggest export market on the planet for Airbus and Boeing just goes away,” Aboulafia said.

The U.S.-EU agreement won’t stop China from doing that, he predicted, “but at least they can prevent a scenario where China divides the West and plays the U.S. and its allies off against each other.”

Washington and its European trading partners remain sharply at odds over Trump’s 2018 steel and aluminum tariffs. What the Europeans found especially galling was the justification for the import taxes: Trump declared the foreign metals a threat to U.S. national security, even though many of the countries hit hardest by the levies were America’s NATO allies.

What’s more, the tariffs did not directly address the biggest problem that steel and aluminum manufacturers face: Vast overproduction from China keeps global metals prices lower than they would otherwise be.

Despite pledging to mend relations with Europe, Biden has so far kept the Trump tariffs in place. They are popular with American trade unions and metals manufacturers in the U.S. Midwest, a region politically crucial to Biden and his Democratic Party.

Still, in a goodwill gesture last month, the EU agreed to suspend plans to escalate tariffs against U.S. products in the metals dispute. And in a joint statement, the two sides said they would address overproduction of steel and aluminum and “hold countries like China that support trade-distorting policies to account.”