BRUSSELS (Pakistan Point News / Sputnik - 15th October, 2020) The World Trade Organization (WTO) has once again waded into the feud between the world's two largest passenger aircraft manufacturers, Airbus and Boeing, which in turn has morphed into a trade dispute between the European Union and the United States, although experts told Sputnik that the increasing turn towards protectionism in the global economy may not favor Europe.
On Tuesday, the WTO ruled that the European Union had the right to impose tariffs on $4 billion worth of US goods in response for state subsidies that had been allocated to the US aircraft maker Boeing.
However, this decision comes just over a year after the WTO made a similar ruling in favor of the US over EU aid given to Airbus. At that time, the WTO said that the US had the right to impose tariffs on goods worth up to $7.5 billion from the bloc.
The Office of the US Trade Representative said on Tuesday that despite the WTO's latest ruling, the EU still had "no lawful basis" to impose tariffs on imports from the United States.
The ongoing trade spat between the EU and the US shows no sign of slowing, and it is consumers that are paying the price. New US tariffs introduced following the October ruling targeted products such as cheese, champagne, and Scottish whisky.
TARIFFS MAINTAIN PLACE IN TRUMP'S ARSENAL
Over the last three and a half years, President Donald Trump has used tariffs on Chinese and European products mostly as a way to "make America great again" by bringing production back to the United States and subsequently creating jobs.
Tariffs on Chinese steel and aluminum were introduced in March 2018, and further measures have targeted electronics, car parts, and cellphones.
Trump then targeted European carmakers, in particular, Germany's BMW and Mercedes Benz. In 2018, the US president threatened to impose a 20 percent tariff on all European cars entering the US market unless the European Union removed its own trade barriers.
The threat prompted many prominent German manufacturers to increase production in the United States as part of efforts to cushion any potential blow to their bottom line.
Trump's protectionist policies come as nothing new when compared to US politics over a long-term span, Charles Gave, the president of the Institute for Liberties in Paris and a prominent author and economist, told Sputnik.
"The United States has actually been very protectionist throughout its history, throughout the 19th century for example. It was not until 1945, when they became very dominant, that they applied openness and liberalism. They had no competition at that time," Gave remarked.
The US president's desire to bring production back to the United States offers the possibility of creating jobs across the country, particularly in sectors that have suffered a marked decline over the decades, Gave stated.
"Trump's policy of forcing the repatriation of industrial jobs hits these companies; this is good for US jobs," the economist said.
GROWTH IN PROTECTIONISM SEEN WORLDWIDE
According to Gave, the global economy is becoming increasingly protectionist and this will be to the advantage of the United States.
"We have entered a phase of restriction, where the short-term gains from protectionism outweigh the long-term in the eyes of world deciders. This is an advantage for the United States, whose continent-sized domestic economy is little affected by world trade. Protectionism has succeeded them in the past and allowed them to develop their industry early on," the economist said.
These sentiments were shared by Tanguy de Wilde d'Estmael, a professor of political science and international relations, who said that the move towards protectionism will continue regardless of whether Trump or Democrat candidate Joe Biden wins the upcoming presidential election.
"Customs disarmament is no longer in the spotlight. Protectionism is back, also in Europe where even the European Commission is talking - a little late - of reindustrializing Europe. Regardless of who wins the presidential election, Trump or Biden, the outcome will be very much the same economically: the United States will no longer project itself into world affairs," de Wilde d'Estmael told Sputnik.
Etienne de Callatay, chief economist at Orcadia Asset Management in Luxembourg, told Sputnik that Trump's attempts to protect US domestic industry appear to be paying political dividends.
"I have read that from the point of view of industrial employment in the states of the United States that they seek to help, Trump's policies have worked less unfavorably than during the eight years of [former President Barack] Obama. You have to be careful with this kind of statistical measure, but yes, protectionism, even if it is harmful to the country that practices it, can have internal redistributive effects, some of which may be politically desired," de Callatay stated.
Prior to Trump taking power, EU and US officials were locked in talks over the possibility of establishing the Transatlantic Trade and Investment Partnership, although de Wilde d'Estmael said that the likelihood of this, or any similar deal, being signed in the near future looks slim.
"The days when Europe and the United States were actively preparing a transatlantic treaty designed to facilitate trade and increase reciprocal investment by removing tariff barriers are over, unfortunately," the UCLouvain professor said.
According to Thierry Afschrift, an international lawyer and fiscal expert, the ongoing dispute between Airbus and Boeing should not raise concerns among the international trading community.
"The conflict between Airbus and Boeing, which is reflected at the WTO, is not alarming. There are only these two giants in the global aviation sector and the European and American governments have always played the protectionist card for this strategic sector, by regularly breaking the rules ... and knowing it. You can see that neither of the giants really wants to play the game," Afschrift remarked.
However, the lawyer said that the increasing protectionism shown in other industries by governments across the globe should raise alarm bells.
"What is more worrying, however, is the trend towards protectionism, which is found all over the world, even in China, which has nevertheless benefited the most from free trade. For the United States, where one can speak of full employment (before COVID-19), Donald Trump is opposed to immigration and opposed to free trade; it is not logical. Protectionism is a mistake for all actors," Afschrift said.
Given the United States' previous disposition towards protectionism, the latest developments may play into Washington's hands. However, China has also looked to strengthen its position both domestically and regionally in order to reduce the reliance on the United States, economist Charles Gave said.
"China is responding to the US head-to-head and has turned to a regional economic alliance in Asia. They want to end Southeast Asia's dependence on the Dollar. They will continue to apply free trade, but only in their Asian zone of influence. If you make a circle 1,500 miles in radius around Hong Kong, you find two-thirds of the world's population. This is why China wants to take or regain control of Hong Kong as a financial center," Gave commented.
Should the European Union choose to make a stand against the United States in the ongoing trade war, it is likely that industries in Europe will be hit the hardest, the economist said.
"In these discussions, Europe cannot raise its voice ... An undervalued euro makes German products very competitive; this is what keeps Germany in the auto business, but they are doomed in the long term. For automotive Germany, their destruction of the Italian, French or Spanish automotive industries will be a Pyrrhic victory," Gave remarked.
According to Afschrift, high taxation levels in the European Union are placing the bloc at an economic disadvantage compared to the US and China.
"Europe's problem is its excessive taxation, which is not the case in China or even in the United States. Our social protection system comes at a very high cost," the lawyer remarked.
European companies will also struggle to remain competitive if they choose to make products domestically with the sole purpose of protecting the bloc's economy, Afschrift added.
"Re-industrializing Europe to produce at a loss or to have to protect its market is not a solution," the lawyer said.
Despite the hostile rhetoric coming from Beijing and Washington, the international community should not necessarily view China as the enemy in the ongoing trade feud with the United States, Orcadia Asset Management chief economist de Callatay stated.
"China is not a priori the enemy: we gain from its development, by having a customer for our products, by importing products where they are better and by being able to reallocate resources to other uses. That said, China also has a legitimate political agenda, and here we may not want to make it more powerful," de Callatay stated.
In this new era of tariffs and combative rhetoric, it remains to be seen how the world's biggest powers will create the conditions to facilitate the seamless trade required to fund the global economic recovery from the COVID-19 pandemic.
Boeing and Airbus, the two passenger jet manufacturers whose industry has been one of the most heavily impacted by the epidemiological crisis, are likely to continue their 16-year long feud well into the future, as competition for sales will increase further.
Business owners and trade leaders will be one of many keen observers of the upcoming US presidential election on November 3. Both Trump and Biden have made a commitment to protect US jobs and the priority they will place on the domestic market is clear. The impact that these policies will have on the global market is less obvious.
