Trump Is Escalating the Trade Fight With Europe—and There’s No Easy Way Out
Not even a Biden victory would heal the wounds in the U.S.-EU relationship.
When the United States and the European Union fight over trade, it might lack the intensity and geopolitical impact of the U.S.-Chinese trade war. But what trans-Atlantic trade disputes have so far lacked in drama, they make up for with a history of irreconcilable differences and sheer tenacity—which does not bode well for the relationship going forward, no matter who wins the U.S. presidential election.
Take the dispute of more than 15 years over the various government subsidies enjoyed by rival aircraft-makers Airbus and Boeing. On Friday, Airbus and the European Commission announced they would change the terms of state support in an effort to persuade the United States to lift $7.5 billion in tariffs. The move came after Washington escalated the dispute last month by serving notice that it would strike the EU with a particularly punitive form of tariffs. Under the so-called carousel retaliation, the United States said it would rotate its current tariffs of 10 to 25 percent on European products to a different set of items every six months, affecting goods such as trucks, beer, olives, and gin. Washington has not yet said whether it is prepared to lift the tariffs in response to the EU’s new move. The two sides have a history of rejecting each other’s overtures.
the planned agreement died without a single chapter being concluded. Growing popular opposition on both sides of the Atlantic to trade deals that were seen as infringements on sovereignty, and the inability of Brussels and Washington to agree on the proper role for government regulation and subsidies, doomed the effort. Few mourned its passing when the deal was quietly abandoned, even before President Donald Trump assumed office and began his systematic pushback against trade.The ongoing Airbus-Boeing dispute was one of several that derailed the grandly named Transatlantic Trade and Investment Partnership, which was supposed to be a comprehensive deal to align the two superpowers of trade at a time when the growing challenge from China was becoming apparent. But in 2016, after three years and 15 rounds of negotiations,
Today, with the once rule-bound world of global trade nearly unrecognizable, the failure of that U.S.-EU deal looms much larger. An increasingly assertive China, which has refused to bow to U.S. trade demands—while cracking down on domestic dissent and imposing a new security law on Hong Kong—needs a strong, coordinated response from the United States and Europe, which share similar interests and together dominate global trade. Instead, the two are mired in their own increasingly caustic trade battles.
Last month, Trump reiterated his threat to impose a hefty tariff on European cars, mainly aimed at German companies such as Volkswagen and Daimler. In front of reporters last week, Trump claimed that the EU was “formed in order to take advantage of the United States,” and he has frequently said that Europe “treats us worse than China.” The United States has also launched an investigation under Section 301, the same law used to impose tariffs on China, into new digital taxes levied or under consideration in the EU and several of its member states. The EU, in turn, has promised to retaliate in kind against any new U.S. tariffs. EU Trade Commissioner Phil Hogan warned that he expected an especially turbulent relationship with the United States in the months leading up to the November presidential election.
The feud is particularly corrosive given the otherwise shared values of the world’s two largest trading powers, which should be a model to the rest of the world. The building of the modern global trade system was a project led by the United States and Europe over several decades following World War II. If the two cannot find ways to cooperate—on trade and economic relations, on defense, and on shared global challenges such as pandemics and climate change—then the prospects for the future world order are dim. Instead, the two are now setting an example of how not to resolve differences.
How did the relationship deteriorate so badly—and can it be healed? A good place to start, both to understand the underlying U.S.-EU tensions and to learn lessons for resolving them, is the futile struggle between Boeing and Airbus over dominance of the world’s civilian aircraft market. Since Airbus’s government-backed creation in 1970, initially as an alliance of several smaller European aircraft manufacturers, it has been Europe’s champion and a global leader in aviation. Boeing has lost much of its luster since the two deadly crashes of its new 737-MAX aircraft in 2018 and 2019, and the subsequent allegations of safety oversights, but the company is still the largest U.S. exporter and the closest thing to a national manufacturing champion. The two companies have been locked in mortal combat since the mid-1980s, when Airbus snatched large orders from U.S. airlines such as Pan Am, Northwest, and American. The United States argues that Airbus succeeded largely because of generous financing from European governments that violated global trade rules; Airbus argues that Boeing has enjoyed similar benefits through its lucrative Pentagon and NASA contracts and various state-level tax breaks.
Part of the aircraft dispute hinges on a fundamental question that is playing out again with the rise of China: To what extent should countries be permitted to bend the rules in order for their companies to catch up with dominant market leaders? There is no legal answer to this question; it requires a negotiated settlement, however difficult those negotiations might be. Europe is not going to abandon its ambitions to be a leading aerospace power, nor is the United States going to permit Boeing to be crippled by competition from Airbus. But instead of the obvious solution of reaching an amicable agreement, the U.S. government filed a complaint with the World Trade Organization (WTO) in 2004, and Europe responded with a counter-complaint. Fought out by the world’s most expensive trade lawyers, the dispute has dragged on 16 years without resolution. Last year, the WTO ruled that the United States was entitled to $7.5 billion in “damages” (WTO-speak for the right to impose tariffs), and is widely expected to make a similar ruling in favor of Airbus this fall, awarding the EU its own compensatory tariffs, perhaps as much as $10 billion. In other words, 16 years of fighting have achieved nothing but new tariffs that hurt exporters of unrelated products, and that have not helped either company. And it’s anything but clear whether the latest move by Airbus will finally bring the fight to a long-overdue resolution.
That self-destructive failure has set a template for U.S.-EU trade relations. Instead of finding mutually acceptable resolutions to trade problems, each side has dug in deeper, often inflaming public opinion. Should Europe permit imports of U.S. chickens safely disinfected with chlorine and corn grown from genetically modified seeds? Do U.S. companies such as Amazon and Apple unfairly benefit from differences in corporate tax rules? Each has become the stuff of epic trade fights, with neither side willing to reach a compromise or calmly live with their differences. Like rival siblings, the two sides have fought the same battles over and over, each time feeling more righteous and aggrieved than the previous time around. During the Transatlantic Trade and Investment Partnership negotiations, they even made scant progress in sectors such as automobiles, where product regulations differ on the details but are nearly indistinguishable in their commitment to consumer safety.
use massive government subsidies to capture global markets in one industry after another, from steel to solar panels to automobiles. Given their disagreements on subsidies such as those to Airbus and Boeing, the United States and Europe have never presented a united front to China. On product regulations, China frequently uses nonobjective claims, as Europe does, to block imports on alleged health or safety grounds. U.S.-European disagreements have entrenched the idea that product regulations are purely a national matter, even if they are often intentionally used to block trade. Corporate taxation is another battleground. With governments across the world starved for resources to fight the COVID-19 pandemic, they need to find better ways to tax global companies such as Apple that are increasingly effective at avoiding taxes. The United States and Europe are threatening tariffs against each other instead of finding common ground.The fights would be amusing if the stakes were not so high. The inability to resolve such issues has widened the trans-Atlantic rift and left an open door for Beijing. For example, China continues to
Trump’s “America-first” trade policy has been especially self-destructive; he sees every trade issue as a zero-sum battle that the United States must win at all costs, precluding any cooperation that serves both sides’ interests. But it should be just as clear that a victory by Democratic presidential candidate Joe Biden in November would not heal all wounds in the U.S.-EU relationship. Leaders on both sides of the Atlantic must relearn the lesson that long-term cooperation matters more than short-term gain—however popular the latter might be among politicians, voters, and opinion leaders focusing on the two sides’ differences. The United States and Europe need to recognize that the values and interests that unite them—not least the preservation of prosperity and global stability in the face of a rising China—are far larger than the small squabbles that divide them.