US President Joe Biden is in Europe as he looks to reset ties with traditional American allies that had become increasingly tensed during his predecessor Donald Trump’s term, partly thanks to tariffs that he slapped on billions worth of European goods.
Biden and the European Union leaders will on Tuesday commit to ending trade disputes related to aluminum and steel and aircraft, according to a draft communique of the US-EU summit that takes place next week.
The draft spells out that the two allies will commit to end the nearly two decade old Boeing-Airbus dispute before July 11 and lift punitive tariffs related to the steel and aluminum trade dispute by December 1.
The talks to ease tariffs take place as the transatlantic allies are witnessing a steep rise in prices, propped up by supply chain issues such as a shortage of shipping containers, high commodity prices, and pent-up consumer demand that pandemic-hit businesses are struggling to meet.
Tariffs on steel and aluminum
In 2018, President Trump left his European allies dismayed by slapping 25% tariffs on imports of European steel and 10% on aluminum, saying they endangered national security.
The Trump administration used Section 232 of the Trade Expansion Act of 1962 — a relic of the Cold war which was seldom used before it became a weapon of choice for Trump — that allows the US to impose tariffs or other trade restrictions on trading partners on national security grounds. Trump said the EU’s “unfair” trade policies were jeopardizing the existence of critical US industries. The president had threatened duties on the European auto industry on similar grounds.
The response from the EU, which described the move as “protectionism, pure and simple,” was swift and severe. It retaliated by imposing tariffs on €2.8 billion ($3.39 billion) worth of US goods like jeans, bourbon whiskey, peanut butter, orange juice and motorcycles.
Trump extended the tariffs on an annual €6.4 billion of steel and aluminum imports from the EU last year, prompting the bloc to threaten fresh duties on US lighters and plastic fittings for furniture among other things.
In May, just a month ahead of President Biden’s first visit to Brussels as the head of state, the two sides agreed not to escalate the dispute. The EU suspended for six months its plans to double retaliatory tariffs on US goods starting June to boost negotiations.
Airbus Boeing dispute
This dispute — one of the longest-running at the World Trade Organization — was not of Trump’s making but it did come to a head during his tenure with goods worth billions from the EU and the US targeted with punitive tariffs.
In 2019, the WTO allowed the US to impose tariffs on up to $7.5 billion (€6.2 biullion) worth of EU goods, the largest award in the trade body’s history, after ruling that the EU had supported Airbus with subsidized loans. The world body also found that the loans, which were repayable on delivery, amounted to illegal assistance.
A year later, the global trade body permitted the EU to slap tariffs on $4 billion worth of US goods in a counter case. The WTO ruled that Washington’s favorable contract terms and tax breaks to Boeing had hurt Airbus sales.
In March, both sides agreed to temporarily suspend the tariffs, which targeted aircraft, sweet biscuits, wines, ketchup, and cheese, as they sought to settle the dispute.
The negotiations between the two sides come at a time the coronavirus pandemic has dealt a massive blow to the aviation sector with much of international travel still suspended.
Digital Services Tax
The Trump administration threatened to slap tariffs on $1.3 billion worth of French goods, including handbags, cosmetics and soaps in retaliation to the French government’s 2019 decision to impose a 3% tax on the revenue earned in the country by global tech companies such as Amazon, Google and Facebook.
Paris argued that the big tech firms did not pay their fair share of taxes by diverting some of their profits to low-tax jurisdictions. Washington said the tax was discriminatory and unfairly targeted US firms.
The tariffs were suspended earlier this year as the US investigated similar taxes adopted by a handful of other countries, including Britain, Spain and Italy.
Earlier this month, the Biden administration announced retaliatory tariffs on goods from Spain, Italy, and Austria over their digital services taxes, but immediately suspended the duties to allow time for OECD-led negotiations aimed at overhauling the international tax system.
Just before Biden embarked on his European tour, the G7 group of wealthy countries reached an agreement to ensure big corporations pay more taxes in the countries where they do business.