By Bloomberg Opinion editors
The world’s longest running and most expensive trade dispute looks set to end in a destructive shootout; that is, if the U.S. and European Union don’t show some sense.
On Wednesday, the World Trade Organization authorized the U.S. to proceed with tariffs on as much as $7.5 billion in European exports, likely including planes, aircraft parts and luxury goods. Unless President Donald Trump’s administration exercises some restraint in imposing these new duties, the two sides are headed for a costly escalation.
The immediate dispute concerned aircraft makers. In 2004, the U.S. brought a case at the WTO accusing Airbus — a consortium backed by Britain, France, Germany and Spain — of benefiting from illegal state aid. Europe lodged a similar complaint against the American aerospace giant Boeing. The two sides have been trading claims and counterclaims ever since, in what has turned into the biggest case in the WTO’s history. After accepting the U.S. claims, the trade body this week authorized the new tariffs as a remedy; the EU’s case will most likely be decided next year.
Although the Trump administration will surely tout this decision as a victory, there’s not much to celebrate. Imposing such tariffs will raise prices for U.S. consumers and act as a drag on the American economy. Airbus’ factory in Mobile, Alabama, depends on imported parts to assemble the A320 family of jets; plenty of U.S. airlines rely on them as well, and have been sounding the alarm. Nor will the EU take this punishment lying down: It’s threatening to impose duties on some $4 billion in U.S. exports if Trump goes ahead. If it prevails in its case against Boeing, it could gain authorization for even costlier measures.
Such tit-for-tat tariffs are bad enough. But the dispute could do deeper damage to the $1.3 trillion trade relationship between the two sides, to everyone’s detriment. Talks on a new free-trade deal, already stalling, could be fatally undermined. Other mutual priorities — such as pressuring China to reform its trade practices or overhauling the global trading system — will surely suffer. And tensions between putative allies will needlessly escalate.
More broadly, Trump’s chaotic trade wars are already having profoundly negative effects on the world economy. A WTO forecast published this week predicted sharply slowing global trade growth. Last month, the Organization for Economic Cooperation and Development warned that “escalating trade conflicts are taking an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets and endangering already weak growth prospects worldwide.”
With fears of recession rising, the last thing the world needs is another costly and senseless battle between the U.S. and Europe. If it were possible to roll back the clock, both sides would be better off. In the early 1990s, the U.S. and the EU had an agreement on support for the large jet-makers, but it fell apart over allegations that Europe was breaching its terms. Finding a similar accommodation now would be far preferable to the endless Boeing-Airbus score-settling.
The WTO has done its best with this overwhelmingly complex case. But the fact is, it relies on the goodwill of its members in seeking resolution, not just retribution. In the today’s context, that seems depressingly unrealistic.
The above editorial appears on Bloomberg Opinion.
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