Investors have been focusing on the dangers of a full-blown US-China trade war that will affect a global economy that is already badly hit by the coronavirus pandemic. However, on Tuesday it was recalled that US-EU trade relations are also bad, with little sign of improvement. It was the latest engagement in an ancient battle that gave an insight into the state of affairs between the two trading blocs. Airbus v Boeing has been running for 16 years, with both sides gaining some success in a dispute at the World Trade Organization.
A decision by the trade organization arbitrators paved the way for Europe to compile a list of nearly $ 4 billion a year worth of goods to collect tariffs on in response to US subsidies to Boeing. The ruling follows last October that allowed Washington to hit Airbus jets and other goods worth up to $ 7.5 billion a year with import duties on aid to the European aircraft maker.
The tit-for-tat dispute has dragged on since the US first raised concerns in 2004 about the alleged illegal repayable start-up aid for Airbus. What used to be a long-lasting mock war, however, is quickly attracting a number of other industries to olive and blueberry wine and whiskey manufacturers. The potential damage goes well beyond the aerospace industry.
Even before Covid-19 it was clear that both sides had to come to a negotiated solution to the underlying problem: How can they support their aircraft manufacturers? The dispute has already sucked up too much economic and political capital. Today's crisis and the prospect of serious economic repercussions only underscore the urgency of an agreement. Global aviation has been crippled by the pandemic. Cash-strapped airlines are in no rush to buy new aircraft. You don't need additional reasons – like expensive tariffs – not to buy them. At the same time, complicated cross-border supply chains that support both aircraft manufacturers need help and no additional costs to weather this crisis.
Securing an agreement would require transparency from both sides. By its very nature, aircraft construction is an industry where subsidies are ubiquitous. Brussels and Washington will continue to support any company, so some degree of honesty needs to be ensured. Every system should not only be transparent, but also enforceable and establish recognized rules and disciplines that both sides can adhere to.
A recent change of guard on the European side gives hope for progress. Valdis Dombrovskis, the European Commission's new trade commissioner, reiterated his desire for a final deal on Tuesday. Much depends on who will occupy the White House after next month's US elections. President Trump's aggressive "America First" approach has so far done little to support progress. However, a win by Trump's Democratic rival Joe Biden is no guarantee of a more forgiving approach when the prospects of one of the country's largest exporters are at stake.
Ultimately, the threat of competition from China could pull both sides to the negotiating table. President Xi Jinping has made no secret of his ambition to turn his country into an aviation power plant. China's first domestic narrow-body passenger aircraft, the C919, is under development. Covid-19 has given the global aerospace sector a hammer blow. A possible silver lining for the pandemic would be if it hastened the end of the Boeing-Airbus dispute – and signaled the beginning of a revived trade relationship between the US and the EU.