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Airbus punitive tariffs: USA choose mild variant, damages manageable—for now

The World Trade Organisation (WTO) has cleared US proposals of countervailing tariffs against European subsidies to Airbus. The US tariffs turn out to be relatively modest, but the US could raise them to up to 100 percent. According to researchers at the Kiel Institute, France, Germany, and Great Britain are the countries most affected by the tariffs that will come into force on Friday (October 18, 2019). The EU would be well advised not to impose countering tariffs but to engage in negotiations at the WTO. Otherwise the situation could escalate, creating GDP costs of 1 bn Euro per year in Germany alone.

Landing Airbus A321neo
© Airbus/H. Goussé

Aircraft and alcoholic beverages from Europe in particular are affected by the USA's countervailing tariffs because of illegal subsidies for Airbus. France and Germany alone bear the burden of the duties on aircraft, as only finished aircraft and not aircraft parts are subject to duties, Kiel Institute President Gabriel Felbermayr and trade expert Vincent Stamer analyse in a Kiel Focus. A total export volume of 2.13 billion euros per year from Germany to the USA is fundamentally at risk. Due to the lower than possible tariffs of 10 or 25 percent set by the US administration, the damage to GDP is initially manageable at 130 million euros. A similar calculation applies to Europe as a whole, which would have to cope with a loss in trade of around EUR 1.6 billion.

“Final warning to Europe”

“The low tariffs can also be understood as a final warning to Europe,” said Kiel Institute President Gabriel Felbermayr. Should the USA later increase the tariffs to the 100 percent allowed by the WTO, the damage to Germany would grow to one billion euros per year. Great Britain could even suffer damage of over 1.34 billion euros from possible 100 percent duties on whisky. In addition, uncertainty about possible tariff increases is damaging the European economies.

Graph Airbus punitive tariffs

“All in all, the US administration stayed below its potential in terms of tariff levels following the WTO ruling. All the more serious is the demand from some sides that Europe should react immediately with countermeasures,” said Felbermayr. This could escalate the situation. “It is definitely more sensible to wait for the arbitration decision which the WTO will make in the parallel proceedings concerning Boeing next year. If the WTO then allows the EU to impose countervailing duties, Europe can also impose duties on American aircrafts. These alone would be a great threat for the USA, because Boeing sells considerably more aircraft in Europe than Airbus in the United States.”