WTO: Trump gets free hand for trade conflict with Europe
A wider massive trade conflict looms beyond the unrelenting one with China because an arbitration panel gave President Donald Trump unfettered approval to punish Europeans for subsidies and other aids given for exports of Airbus airliners.
An arbitration panel of World Trade Organization (WTO) authorized Trump to impose punitive duties of up to 100% on $7.5 billion worth of trade from the European Union, because of subsidies and other aids deemed to have harmed Boeing and its civil airliner ecosystem. This ruling is the biggest ever and could trigger wider upheavals.
EU will seek negotiations with the US but will not take the punishment lying down. It has its own equally large case against alleged subsidies and other aids given by the US government to Boeing. A WTO panel ruling is expected in its favor next year.
Trade conflicts have weakened the US, EU and Chinese economies but they are not reeling. Yet, global trade has taken a sharp hit in the last four months. On 1 October, the WTO warned: “Escalating trade tensions and a slowing global economy have led WTO economists to sharply downgrade their forecasts for trade growth in 2019 and 2020.
“World merchandise trade volumes are now expected to rise by only 1.2% in 2019, substantially slower than the 2.6% growth forecast in April. The projected increase in 2020 is now 2.7%, down from 3.0% previously.
“The economists caution that downside risks remain high and that the 2020 projection depends on a return to more normal trade relations.”
The manufacturing core of the US economy may also be sliding towards trouble. The US Institute for Supply Management’s (ISM) found contraction in manufacturing activity for two consecutive months. August was the lowest point since June 2009, when the US was in deep recession.
These numbers are not catastrophic but they could be if Trump starts a trade war with the EU. Regrettably, that is likely particularly if he decides to draw attention away from the impeachment process.
The panel’s ruling delighted Trump particularly because he is looking for any good news after Democrats in US Congress began impeachment investigations against him. “It was a big win for the United States,” he said. “The wins are now because they think I don’t like the WTO and they want to make sure I’m happy.”
His expropriation of credit for the WTO’s independent arbitration process begun long before he rose to power is causing a few smiles. But the bemusement is overshadowed by trepidation that his triumphalism may provoke more trade upheavals in the next 12 months, as he heads into presidential elections in November 2020.
The panel ruling is a big deal because both sides already have fingers on the trigger. Washington’s first shot came within hours of the panel’s ruling. It immediately announced 25% punitive tariffs on some food and manufactured products from the EU starting on 18 October while reserving the right to make changes at will in response to how the Europeans react.
A moderate 10% tariff will be placed on new aircraft from Europe partly because US airlines have about 280 aircraft on order from Airbus and it imports nearly 40% of components from the US. It also has a major airliner production facility in Alabama.
Washington had previously announced a list of $21 billion in punitive tariffs against EU producers and Trump continues to threaten tariffs on $110 billion of EU made automobiles and parts. They are being held for the next flurry of punches.
Pushing back on Trump’s trade muscle will be very difficult because the EU will be weakened when Britain leaves on 31 October without an orderly deal as expected currently. Britain, which also manufactures Airbus parts, will be in substantial disarray.
The German and some other EU economies are on the brink of technical recession, which is two consecutive quarters of declines in growth. Germany’s problems are already widely seen as results of Trump’s trade conflict with China.
New trade pain could fragment the decades-old US-Europe allies since Airbus is a lifeline for France, Germany and Spain and vehicle exports are vital for Germany and France. The foods already announced for punishment by Washington are central to Italy, Greece, Portugal and Spain.
Brussels previously announced a $20 billion list of U.S. exports to target and its leaders have repeatedly warned against messing with it vehicle-making industries. Trump and Secretary of State Mike Pompeo have won few friends in Europe during their recent trips although everyone is civil when they visit.
At least $7.5 billion is the damage that the US and Boeing argued was caused by subsidized exports of Airbus airliners. This dispute began in 2004 at WTO, a year after Airbus started delivering more planes than Boeing making it look like Boeing wanted only to undermine the competitivity of Airbus, which was then seen as an upstart. It is now a giant with political influence in Europe similar to that of Boeing in Washington.