It often seems as though hardly a day goes by that President Trump isn’t threatening to enact new tariffs against a trading partner. First it was China, which Trump continually threatens to enact new tariffs against. Then it was Mexico, whose exports Trump threatened to place tariffs on if the Mexican government didn’t work harder to prevent immigration to the US. Then followed India, which has slapped retaliatory tariffs against US goods in response. And now the European Union finds itself the target of potential new US tariffs.
Trump’s reasons for placing tariffs on imports from the EU are two-fold. First, there is the matter of the ongoing spat between the US and EU on subsidies to aircraft manufacturers. Secondly, there is US anger at the EU’s handling of Iran.
The US complained that EU subsidies to Airbus unfairly subsidized the company’s production and allowed it to be too competitive against Boeing in the airliner market. But the EU complained that defense contracts to Boeing were a subsidy to Boeing, allowing it to compete unfairly against Airbus.
Both the EU and US have been found at fault, but a final ruling from the WTO has yet to be made. Rather than agreeing just to stop subsidizing their aircraft manufacturers, Trump is thinking about placing tariffs on EU goods. Those would include agricultural exports and food and drink such as whisky, cheese, and olives.
On Iran, the US is upset that the EU has set up a special purpose vehicle to allow European banks and businesses to continue doing business with Iran. While the US pulled out of the nuclear deal unilaterally, the other parties to the agreement didn’t do so, so the agreement remains in effect for now. But the US wants other countries to follow it, so the EU’s unwillingness to play ball is another reason in Trump’s mind to enact tariffs.
While the amount of tariffs under consideration is relatively small, especially compared to tariffs placed against China, there is always the possibility that they could increase significantly in the future. That could further hamper trans-Atlantic trade, particularly if the EU decides to retaliate.