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Photo: Twitter.com

US Opens Second Front of Trade War

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NEW YORK – April 11, 2019

President Donald Trump threatens Europe with duties on goods worth 11 billion dollars. In parallel, the White House continues to discuss import charges on European cars. What is the reason for the new round of trade wars?

Trump's Ultimatum

The formal reason for Washington’s new restrictions against EU countries is the conclusion of an appeal in the World Trade Organization on a dispute between the US and the EU on the legality of subsidizing the largest aircraft manufacturer Airbus by France, Germany, Spain, and the UK.

Referring to the WTO decision, Trump announced on Twitter that Washington will soon introduce additional tariffs on the import of European goods worth $11 billion.

“The EU is likewise a brutal trading partner with the United States, which will change,” he wrote

According to the US trade representative Robert Lighthizer, the final goal of the United States is an agreement with the EU on the cessation of all subsidies not agreed with the WTO for the construction of large civil aircraft. When the European Union refuses these subsidies, the duties imposed can be abolished.

In his statement, it is emphasized that the additional fees will allow compensating for the annual damage of $11 billion caused to the US by unfair competition from Airbus.

With a complaint about the illegal subsidies provided by Airbus by the EU countries, Washington applied to the WTO back in 2004. In 2011, a WTO recognized that the European Union from 1968 to 2006 provided its aircraft manufacturers with subsidies of $18 billion, thanks to which Airbus was able to quickly bring new aircraft models to the market, depriving Boeing of orders for at least 300 aircraft.

In response to this decision, the EU canceled two Airbus subsidies, but already in 2012, it provided the company with a preferential loan of five billion euros to accelerate the launch of the A350 XWB series.

In May 2018, the White House made a new complaint: European subsidies for the launch of the A350 XWB and A380 lead to significant losses in the sale of Boeing 787 and 747 aircraft, as well as to a reduction in the market share of large Boeing Airliners in the EU, Australia, China, Korea, Singapore, UAE.  And it requested the WTO sanction for the introduction of countermeasures against the European Union for $11.2 billion. The WTO has now responded positively to this request.

EU is against this

However, Europeans do not agree with this decision. Firstly, they are not satisfied with the size of the US duties.

“The figure given in the statement of the US Trade Representative is based on US domestic estimates, which have not been confirmed by the WTO,” the European Commission said in a statement released Tuesday. “The European Union is confident that the declared countermeasures are excessive, the actual amount of compensation can only be determined by the arbitrator appointed by the WTO.”

Secondly, Europeans were outraged that the list of goods for which the US introduced new duties, in addition to airplanes, helicopters and spare parts for them, included olives, wine and other food and household products (up to nails and swimsuits) from all 28 EU countries - their complete list, published by the US Department of Commerce, takes 14 pages. Although the WTO was found guilty of providing illegal subsidies to Airbus for only four major European countries.

Finally, as it turns out during the investigation of recent disasters of the Boeing 737 MAX, Washington also provided its manufacturer with a wide range of illegal preferences: from tax benefits and profitable orders from the Pentagon to the ability to independently certify its products. The EU complaint about this is now being considered by the WTO.

Pure politics

Experts have no doubt that Washington’s new trade sanctions against Europe are largely related to the political events of recent months. First of all, by imposing restrictions on all EU States, the White House provokes the aggravation of contradictions between the old and new EU members.

It is known that the countries of Western Europe have recently sought to distance themselves from the US, while Poland, the Baltic States, and other former socialist countries consider Washington their main ally.

In addition, Trump has not yet achieved success in the trade war with China - the conclusion of a new trade agreement has been postponed indefinitely, and it is already clear that the US did not achieve its main goal - the curtailment of Beijing's high-tech development programs. Therefore, Trump urgently needs a new trade opponent, whom he can indicatively punish on the eve of the US presidential election.

And, of course, the US needs to save from the collapse of its aircraft manufacturer, experiencing one trouble after another. After two sensational catastrophes of the Boeing 737 MAX 8, problems with MAX 10 engines were discovered.

Airlines stopped ordering the 737 model, with the result that the manufacturer had to announce a sharp reduction in plans for their release. To top it off, Boeing was sued by its own shareholders, accusing the company's management of misleading investors about aircraft safety.

In a statement received this week at the Chicago Federal Court, it is noted that Boeing "put profit growth above the principles of aircraft safety and honesty in relations with shareholders."

As a result, the company's shares fell by almost ten percent over the last week, to $363.6, and the company's value fell by more than $35 billion over the past month.

Meanwhile, at the end of March, Airbus signed a contract for the supply of 300 passenger aircraft to China. The total amount of the transaction is estimated at about the same $35 billion. It is clear that in Washington they wanted to take revenge on the Europeans.

However, the contract for the purchase of airliners is far from the only example of friendship between the EU and China against the US. At the end of March, the head of the PRC, Xi Jinping, visited several EU countries and held talks on cooperation in the framework of the large-scale project “One Belt - One Road”. Among the results of the visit is the signing of 29 contracts for $2.8 billion between China and Italy.

Washington reasonably regarded Beijing's successful promotion of its strategic project in the EU as its own geopolitical defeat.

The aggravation of contradictions between the US and the EU led to the strengthening of the positions of another geopolitical adversary - Russia. In fact, Washington has provided the European Union with an excellent reason to abandon its previous promises to increase purchases of American liquefied natural gas (LNG) in favor of Russian fuel.

Experts have repeatedly noted that Russian pipeline gas and LNG are much more profitable for Europe than the American proposal. Nevertheless, as part of the settlement of last year's trade dispute (the US imposed duties on steel and aluminum from Europe, the EU in return levied duties on American motorcycles, whiskey and a number of goods) Europeans represented by German Chancellor Angela Merkel agreed to expand LNG supplies from the US to the detriment of themselves.

Now the hopes of the American gas industry are rapidly eroding. According to a report by the International LNG Importers Group (GIIGNL), last year Russia surpassed the US in sales of this type of fuel in key markets. For the whole of 2018, European and Asian consumers purchased 4.43 and 12.86 million tons of Russian LNG compared to 2.7 and 10.73 million tons of US. In the coming years, exports from Russia will only grow.

European traders are already lining up to buy even that Russian LNG, which is only planned to be produced at enterprises that have not yet been built. In early April, it became known that the Swiss-Dutch Vitol and the Spanish gas company Repsol concluded agreements with the Russian Novatek on the annual supply of a million tons of fuel from the Arctic LNG-2 plant. It will be put into operation in 2022. In this case, the contract was concluded immediately for 15 years.

Experts are wondering when Europeans will raise the "gas question" in response to American claims. After that, Trump will have to restrain his aggressive attitude. Otherwise, the Americans will lose access to the European fuel market, and their plans to build gas liquefying capacity for 156 million tons per year will remain on paper.

Author: USA Really