US can impose tariffs on $7.5 billion in goods because of illegal E.U. subsidies, WTO rules

The World Trade Organization on Wednesday authorized President Donald Trump to impose tariffs on about $7.5 billion worth of European goods, capping a 15-year trans-Atlantic dispute over illegal subsidies to aircraft maker Airbus. The decision - the largest in the trade body’s history - opened the door to a broader trade war with the European Union.

The administration plans to impose tariffs of 10 percent on European aircraft and 25 percent on a variety of agricultural and industrial products, once it receives the final WTO approval later this month, a senior official with the Office of the U.S. Trade Representative told reporters.

USTR said French wine, Italian cheeses, cashmere sweaters and a range of other popular items would face the higher tariffs beginning Oct. 18.

"For years, Europe has been providing massive subsidies to Airbus that have seriously injured the U.S. aerospace industry and our workers," U.S. Trade Representative Robert E. Lighthizer said. "Finally, after 15 years of litigation, the WTO has confirmed that the United States is entitled to impose countermeasures in response to the EU's illegal subsidies

The European Union has vowed to retaliate with its own levies on American products while it awaits a separate WTO ruling next year on its complaint that Boeing, a U.S. manufacturer and Airbus rival, also has received improper government backing.

Trump has complained about European trade practices almost as often as he has criticized China, which he has hit with several rounds of punitive tariffs. Standing alongside the visiting Finnish president at a White House news conference Wednesday, he slammed the chronic U.S. trade deficit with the European Union.

"We're going to have to do something with the European Union," Trump told reporters. "They have not been treating this country right for many, many years and they know it."

The president also took personal credit for Wednesday's ruling, though it was consistent with several earlier WTO decisions in the case dating to 2011. "Your wins are now," he said, "because they think I don't like the WTO and they want to make sure I'm happy."

Both Airbus and Boeing stock prices fell roughly 2 percent.

Any U.S. trade measures would be "shortsighted and counterproductive," EU Trade Commissioner Cecilia Malmstrom said in a statement.

"If the U.S. decides to impose WTO-authorized countermeasures, it will be pushing the EU into a situation where we will have no other option than do the same," she warned.

Airbus, likewise, said that a tit-for-tat tariff war would only damage both sides.

The company, which employs about 1,300 workers in its Mobile, Alabama, aircraft plant, said it spent about $50 billion over the past three years on American parts for its planes. That spending supported 275,000 jobs in 40 states, the company said.

USTR opted to exempt aircraft parts from the new tariffs, a move that could limit the damage to the European company's U.S. operations.

Airbus CEO Guillaume Faury said the company hoped the U.S. and EU would reach a negotiated settlement "before creating serious damage to the aviation industry as well as to trade relations and the global economy."

Under global trade rules, countries are generally prohibited from providing subsidies that give domestic companies an unfair trade advantage over foreign rivals.

Malmstrom said the EU in July had provided the Trump administration with "concrete proposals" to resolve the subsidies dispute but received no response.

But the EU proposals are "not sufficient," according to the senior USTR official who briefed reporters. The administration hopes the tariffs force the EU to improve its offer and abandon its subsidies, the official said.

"Where this goes ultimately is a negotiation," said William Reinsch, a former Commerce Department official. "They're guiltier than we are."

With Trump considering the imposition of separate 25 percent tariffs on European automobiles, trade relations between the United States and its closest allies are set to sour even as the U.S.-China trade war drags on.

The president and European Commission President Jean-Claude Juncker last summer agreed to forestall any tariffs while negotiators tried to hammer out a broad trade agreement.

In May, the U.S. Commerce Department found that rising numbers of imported automobiles and auto parts imperiled national security by challenging the viability of U.S.-based research and development.

Trump is expected to decide next month whether to proceed with his threatened tariffs on European cars, a move that would rock financial markets and deal both economies a serious blow.

"If he does that, he triggers a war," said Reinsch, now at the Center for Strategic and International Studies, who added that European officials' commitment to operate within WTO rules would likely contain the conflict.

The EU's ability to respond to any U.S. action also could be complicated by the turnover in leadership in Brussels, Reinsch said. Effective Nov. 1, Europe's top team gets a complete makeover, including a new president and trade chief.

The WTO earlier this year had ruled in favor of Washington in its long-running complaint that European governments backed Airbus with generous multibillion-dollar subsidies in its battle against Boeing. Wednesday’s ruling determined the value of the authorized U.S. tariff action.