The EU gives subsidies to airplane manufacturer Airbus, giving it an unfair advantage over U.S.-based Boeing. So the U.S. filed a complaint with the WTO. The decision came down yesterday. As expected, it was in the U.S.’s favor, since corporate subsidies are fundamentally unfair. As part of the ruling, the U.S. is allowed to enact tariffs against up to $7.5 billion of EU goods to counteract the Airbus subsidies without violating WTO rules. This being the Trump administration, the new tariffs were announced within hours of the decision coming down. But just because you can do something doesn’t mean you should.
Aside from the usual economic objections to tariffs, the Trump administration’s strategy won’t work in a repeated-play setting. Because America’s relationship with the EU is longer than a one-time interaction, the new tariffs will soon do more harm than simply make some consumer goods more expensive.
Boeing gets subsidies of its own from the U.S. government, and the EU has its own WTO complaint pending about that. Corporate subsidies being fundamentally unfair, the EU will likely win. It will then likely have the option to put up its own additional tariffs against U.S. goods. If this next round of the repeat-play game plays out as expected, both Airbus and Boeing will continue to receive subsidies, same as before. Moreover, two new tariff increases will harm consumers and businesses on both sides of the Atlantic. At this point, the Trump administration’s latest tariffs will have caused double harm. Again, just because they can enact a new tariff doesn’t mean they should.
As has happened in almost every instance of the trade war so far, Trump’s opponents are using a tit-for-tat strategy. His tariff hikes are not met with the reforms he wants. They are responding in kind with their own tariff hikes. Trump’s tariff hikes reliably cost both Americans and our trading partners double.
Also worth noting—Airbus gets about 40 percent of its parts from the U.S. and has a factory in Mobile, Alabama. While all tariffs harm the country that enacts them, this one will cause more direct harm.
For more, see Iain Murray’s and my paper “Traders of the Lost Ark.” My recent paper on the Export-Import Bank, known around Washington as “Boeing’s Bank,” sheds some light on Boeing’s subsidies that may soon lead indirectly to yet more tariffs on U.S. businesses and consumers.