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Imagine the cost to purchase a jumbo jet and ship it across the Atlantic. Now add 15%.

The European Union announced yesterday it will proceed with $4 billion of annual tariffs on Boeing aircraft and other U.S. goods, the latest retaliation in a protracted trade battle.

Subsidy Saga
The U.S. has long criticized “launch aid” provided by European countries to help Airbus get new models off the ground.

Europe has snapped back with allegations that Boeing benefits from inflated defense contracts and excessive NASA research dollars.

Unable to settle their differences amicably, in 2004 the two sides appealed to a higher power: the World Trade Organization. After years of suits, countersuits, and after all the lawyers' second homes were paid off, the WTO ruled that both sides provided illegal subsidies:

  • In October 2019, the WTO authorized $7.5 billion of tariffs on Airbus jets and other European imports such as Italian cheese and French wine (not clear who is hurting who).
  • Last month, the WTO ruled to let Europe impose $4 billion of its own tariffs on U.S. goods ranging from aircraft to casino tables and fitness machines. Today, those tariffs go into effect.

Finding A Tariff Truce
Still, E.U. regulators hope cooler heads will prevail in the coming months.

Valdis Dombrovskis of the European Commission said the E.U. is ready to rapidly withdraw tariffs if a negotiated settlement is reached. Valdis said, “we have made clear at every stage that we want to settle this long-running issue.”

Yesterday, Germany’s economy minister Peter Altmaier said the EU will try to reach a "new start" in its trade relations with the U.S.

Our Take: No one wins when cheese and wine cost more.

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