WASHINGTON (CN) — The U.S. can impose $7.5 billion in tariffs on goods from the European Union in an ongoing aircraft subsidy dispute, the World Trade Organization said Wednesday, setting the stage for another trade war.
The tariffs are a record amount awarded by the WTO and are a retaliatory response to what arbitrators say were illegal subsidies to the European plane manufacturer Airbus.
The 28-member bloc is expected to hit back with tariffs of their own on American goods, as WTO arbitrators are expected to rule next year on a separate decision against U.S.-based Boeing.
Both Airbus and Boeing have argued the other company has been illegally subsidized, with Airbus claiming Boeing receives illegal military and research subsidies.
A May 2018 ruling by the WTO found that Airbus had been illegally subsidized with “launch aid” through the EU, which directly affected sales of Boeing’s 787 aircraft. The ruling centered on that aircraft and Airbus’ 350XWB and A380 crafts.
The new tariffs are expected to be imposed by the Trump administration in mid-October, after a WTO panel formally signs off on them.
The award is the largest given by the international trade organization in its 25-year history, the previous record being $4 billion in a 2002 dispute involving the United States over a foreign sales corporation law. The organization ruled against the U.S. for illegally subsidizing some of its businesses.
The decision opens the door for the Trump administration to expand its ongoing trade battles, this time targeting the EU. Plans to impose tariffs on EU products like whiskey, cheese and olives were announced by the administration in August. The bloc previously announced $3 billion in retaliatory tariffs against the U.S. in June of last year, focusing on agricultural products, steel and nearly 200 other products.
President Donald Trump’s unilateral tariffs on billions of dollars worth of steel and agricultural goods from the EU, China and other countries have not received WTO approval, though the latest award will be supported by the organization.
Trump has repeatedly criticized the WTO through Twitter, most recently in July. The president called the organization “broken” before directing the U.S. Trade Representative Robert Lighthizer to pressure the WTO to prevent countries from claiming developing-country status, which provides certain advantages in trade disputes.
The United Kingdom’s Department of International Trade responded to the ruling in a statement Wednesday, saying the country was working with the U.S. and EU to reach a settlement.
“The UK government is clear that resorting to tariffs is not in the interests of the UK, EU or US. We are also seeking confirmation from the WTO that the UK has complied fully with WTO rulings regarding support to Airbus, and should not be subject to tariffs,” the department said.
EU Trade Commissioner Cecilia Malmstrom said a tariff war "would only inflict damage on businesses and citizens on both sides of the Atlantic, and harm global trade and the broader aviation industry at a sensitive time."
"If the U.S. decides to impose WTO authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than to do the same," Malmstrom said.
Archil Cheishvili, CEO for GenesisAi, which uses artificial intelligence to form an analytics platform for capital markets, said Wednesday’s ruling and the potential ruling against Boeing next year will even the playing field for both aviation companies to continue competing.
Cheishvili also said he expects the U.S. to turn its attention from the China trade war to a new one with the EU.
“It’s just a matter of time before the trade war between the U.S. and EU gets worse,” Cheishvili said in a phone interview. “I think that once the U.S. has deals with China, they will divert their attention to the EU countries. My prediction is it will not go well for those countries.”