Boeing’s holdings at the World Trade Organization are at risk of a trade war
Regular GULLIVER readers may be interested in an article in this week’s print edition about the impact of Boeing’s role in a World Trade Organization case, which involved retaliation for alleged subsidies from the Union European for Airbus, its European aviation rival.
On May 15 the WTO’s final appellate body upheld parts of a previous ruling, finding that the European Union gave Airbus wrongful subsidies to develop new aircraft. That, he concluded, had hit sales of Boeing jets. As soon as the WTO approves, America will have the right to retaliatory tariffs on imports from the EU. Trade experts warn that they could be at the highest level in the history of the WTO.
But this could have unintended consequences for Boeing, which now derives 55% of its revenue from outside the American home region:
The administrations in Brussels and Washington had hoped that a decision would make the two airlines stop attacking each other and agree on what subsidies would be appropriate for them both. And when retaliatory tariffs were imposed after previous WTO decisions, for example against American steel duties in 2002, they carefully targeted politically sensitive industries, such as Florida oranges, to force the other side quickly surrendered.
That might not happen this time. Mr Trump’s trade representative, Robert Lighthizer, has threatened to use “all available tools”, including “countermeasures on EU products”. But instead of taking a progressive approach, the administration may impose tariffs on European car imports, which Mr Trump says are taxed less than American ones exported to the EU . Europe could then use any regulation favorable to Airbus to retaliate against Mr Trump’s proposed steel and aluminum tariffs. Instead of both sides going back to free trade, the row could escalate.
And that could be an expensive strategy. Airlines and governments don’t like buying from companies that want to impose tariffs on their home businesses. As Gulliver wrote late last year, Boeing’s request for protection against Canadian aircraft imports made by Bombardier was costly:
in early December Canada announced it was not going to proceed with an order for 18 Boeing-made Super Hornet fighter jets, which will cost the company up to $6bn in revenue. A week later, on December 13, he received another slap in the face, this time from Delta, America’s second largest airline, which ditched its Boeing 737 MAX aircraft to buy 200 jets from Airbus, the his competitor from Europe, worth approx. $25bn at list prices.
That just goes to show, in and out of the sky, that immunity doesn’t pay.