Investors have been focused on the dangers of a full-blown trade war between the US and China blighting a world economy already severely dented by the coronavirus pandemic. But on Tuesday came a reminder that trade relations between the US and the EU are also poor, and showing few signs of getting better. It was the latest skirmish in an old battle that gave a glimpse of the state of play between the two trading blocs; Airbus versus Boeing has been running for the past 16 years, with both sides scoring some successes in a dispute at the World Trade Organization.
A ruling by arbitrators at the trade body paved the way for Europe to compile a list of goods worth close to $4bn a year on which it can levy tariffs in response to US subsidies for Boeing. The ruling follows one last October that allowed Washington to hit Airbus jets and other goods worth up to almost $7.5bn a year with import tariffs over aid to the European aircraft maker.
The tit-for-tat dispute has dragged on ever since the US first raised concerns over alleged illegal repayable launch aid for Airbus in 2004. But what used to be a long-running phoney war is rapidly drawing in a range of other industries, from wine and whisky manufacturers to olives and blueberries. The potential damage goes far beyond the aerospace industry.
It was clear even before Covid-19 that both sides needed to come to a negotiated settlement on the underlying issue: how to support their aircraft makers. The dispute has already sucked up too much economic and political capital. Today’s crisis and the prospect of serious economic consequences only underline the urgency of a deal. Global aviation has been crippled by the pandemic. Cash-strapped airlines are in no hurry to buy new aircraft. They do not need additional reasons — such as expensive tariffs — not to buy them. At the same time, intricate cross-border supply chains that help to underpin both aircraft makers need help, rather than added costs, to survive this crisis.
Securing a settlement would require transparency from both sides. Aircraft manufacturing is by its nature an industry where subsidies are ubiquitous. Brussels and Washington will continue to support each company so there needs to be a degree of honesty. Any system would need to be not only transparent but also enforceable and set out recognised rules and disciplines both sides can adhere to.
A recent changing of the guard on the European side offers hope of progress. Valdis Dombrovskis, the European Commission’s new trade commissioner, on Tuesday reiterated his desire for a final settlement. Much rests on who will occupy the White House after next month’s US election. President Donald Trump’s aggressive “America First” approach has so far done little to aid progress. Yet a victory by Mr Trump’s Democratic rival, Joe Biden, is not a guarantee of a more conciliatory approach when the prospects of one of the country’s largest exporters is at stake.
Ultimately, looming competition from China might draw both sides to the negotiation table. President Xi Jinping has made no secret of his ambition to turn his country into an aviation powerhouse. China’s first homegrown narrow-body passenger jet, the C919, is in development. Covid-19 has dealt a hammer blow to the global aerospace sector. A possible silver lining to the pandemic would be if it were to hasten the end of the Boeing-Airbus dispute — and signal the start of a revitalised trading relationship between the US and the EU.