GULLIVER’S regular readers might be interested in an article in this week’s print edition about Boeing’s partial victory in a case at the World Trade Organisation, brought in retaliation for subsidies that the European Union is alleged to have given Airbus, its European planemaking rival.
On May 15th the WTO’s final appeals body upheld parts of a previous ruling, finding that the European Union wrongly provided subsidies to Airbus to develop new aircraft. That, it concluded, had hit sales of Boeing’s jets. As soon as the WTO gives the go-ahead America will have the right to impose retaliatory tariffs on EU imports. Trade experts warn they could be the highest in the WTO’s history.
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But this could have unintended consequences for Boeing, which now receives 55% of its revenues from outside its home territory of America:
The administrations in Brussels and Washington had hoped that a ruling would prompt the two plane-makers to stop attacking each other and agree on which subsidies they would both find acceptable. And when retaliatory tariffs were imposed after previous WTO rulings, for example against America’s steel duties in 2002, they were carefully aimed at politically sensitive industries, such as Florida oranges, to force the other side to concede quickly.
That may not happen this time. Mr Trump’s trade representative, Robert Lighthizer, has threatened to use “every available tool”, including “countermeasures on EU products”. But rather than taking a nuanced approach, the administration may impose tariffs on imports of European cars, which Mr Trump says are taxed less than American ones exported to the EU. Europe might then use any ruling in Airbus’s favour to retaliate against Mr Trump’s proposed steel and aluminium tariffs. Rather than the two sides reverting to free trade, the row could escalate.
And that could be an expensive strategy. Airlines and governments do not like buying from companies that want to impose tariffs on their home industries. As Gulliver wrote at the end of last year, Boeing’s demand for protectionism against imports of planes from Canada made by Bombardier proved costly:
…in early December Canada announced that it was not going to proceed with an order for 18 Super Hornet fighter jets made by Boeing, costing the firm up to $6bn in revenue. A week later, on December 13th, it received another slap in the face, this time from Delta, America’s second biggest airline, which shunned Boeing’s 737 MAX aircraft in favour of buying 200 jets from Airbus, its arch-rival from Europe, worth around $25bn at list prices.
That just goes to show that, both in and out the sky, protectionism doesn’t pay.
Source: economist
Boeing’s antics at the World Trade Organisation risk a trade war