Officials Optimistic About Solving US-EU Tariff Spats

Peterson Institute for International Economics Senior Fellow Jacob Funk Kirkegaard, a former Danish official, said that while European officials have to use the rhetoric of outrage at U.S. Buy America policies and protectionism, in their hearts, European officials understand "the U.S. remains very, very open to European exports." In fact, Kirkegaard said, the EU trade surplus with the United States has been growing throughout the last four years. "The reality is that European leaders, at the end of the day, understand the trans-Atlantic relationship … is very good to Europe."

Former World Trade Organization Appellate Body member Jennifer Hillman said she is encouraged by Bloomberg reports that the Section 232 tariffs on European steel and aluminum may be resolved by Dec. 1.

Sen. Pat Toomey, R-Pa., reacted to the same report earlier in the week, saying: "Reports that the Biden administration is ending these taxes on imports from the EU is encouraging. If true, the Biden administration must not waver; in fact, it should be working to remove these destructive taxes on our other allies also. This pending action does not change the fact that Congress should work to rein in executive authority to unilaterally impose ‘national security’ taxes.” Toomey tried to get an amendment that would have given Congress a say on Section 232 attached to the China package, but failed.

Hill also said that since countries are not collecting digital services taxes, and the U.S. is not collecting tariffs in response, she thinks that trade skirmish can be avoided.

In response to a question from International Trade Today during a Brookings Institution webinar June 11, Hillman said that the sense is that the Boeing-Airbus dispute will be resolved before the end of the temporary pause on tariffs in July. "The rumors that we hear are that a solution is coming because neither side wants to keep putting tariffs on each other; that only hurts those who pays the tariffs," and doesn't solve the dispute, she said. The question, she said, is what will the settlement look like? Will it only be on transparency? Will there be an agreement to a cap on subsidies? Will it address only Boeing and Airbus, or will it address Canadian, Brazilian and Chinese aircraft manufacturers?

Kirkegaard said COMAC, a Chinese company, is also trying to build wide-body aircraft. "You don’t have to be very smart to figure out which of these three has the largest subsidies," he said, echoing the European Union's message.

He said the question of appropriate government subsidies to aircraft companies has huge environmental import, because there is not yet a low-emission or zero-emission fuel for aircraft. To transition to cleaner flying, "that’s undoubtedly going to require a lot of public subsidies," he said.

Kirkegaard also said that the nexus of climate and trade will be tricky for the U.S. and the EU. He asked if Europe can trust that U.S. goals to move away from fossil fuels in the electric grid and accelerate the transition to electric vehicles is as good as its own cap and trade system? He asked: "Can we accept that as equivalent so that carbon border adjustment is not going to apply to U.S. exports?"

He added that while Europe is relieved by President Joe Biden's engagement, they wonder what's going to happen in 2025. "What happens if another person is elected on a Trumpian platform?" He said Europe may need reassurance from states and businesses that they will continue to work toward the Paris Accord targets even if a Republican wins the White House.

Hillman said the area that worries her the most in U.S.-European economic relations is whether the U.S. and Europe can get on the same page so they can push back on China together. She said that Eastern European states that are not yet in the EU, but want to be, are "very much being pulled into China’s orbit."

She also noted that European and Chinese economic integration continues, with freight trains running daily from China all the way over to London.

Kirkegaard said he's less concerned, because he thinks the new German coalition will be more pro-democracy, both in its backyard, in Hungary and Poland, and in how it weighs human rights and exports to China.

He said the Comprehensive Agreement on Investment, or CAI, with China, is on ice for the foreseeable future. He said the chances of CAI coming back are slim, because of "the way that the Chinese government has conducted itself, slapping personal sanctions on EU parliamentarians." As long as those sanctions are in place, CAI will go nowhere, he said, and he doesn't expect China to remove them.

"I am quite hopeful" about the prospects for a united front on China across the Atlantic, he said, adding: "We’re certainly in a better place than we were six months ago."