World Economy

WTO rules in favor of US in Airbus dispute, paving way for tariffs on $7.5 billion of EU goods

Key Points
  • Washington can now hit the EU with billions of dollars in tariffs following the WTO ruling over European government support for European planemaker Airbus.
  • The move could trigger a new front in the trade war battle that has captured the attention of investors worldwide.
  • The EU Trade Commissioner labeled any fresh tariffs imposed by the U.S. as "short-sighted and counterproductive."
President Donald Trump attends a presentation ceremony of the Medal of Valor and heroic commendations to civilians and police officers who responded to mass shootings in Dayton, Ohio and El Paso, Texas during a ceremony in the East Room of the White House in Washington, September 9, 2019.
Erin Scott | Reuters

The World Trade Organization (WTO) has backed a U.S. request to impose tariffs on $7.5 billion of European goods, potentially sparking a new trade war across the Atlantic.

Arbitrators from the WTO have granted President Donald Trump's administration the right to levy billions against imports of European goods for what they say are illegal subsidies granted to planemaker Airbus by the European governments of Germany, France, Spain, and the United Kingdom.

The U.S. first lodged complaints in 2004, related to the development of the Airbus A350 and A380 airplanes, the WTO said in a summary of its findings.

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WTO sides with US in Airbus subsidy case, allowing US to target $7.5B in EU imports

The trade body rejected some claims made by the U.S. but did find that Airbus had "paid a lower interest rate for the A350XWB LA/MSF than would have been available to it on the market."

It also found that the European Union had failed "to take appropriate steps to remove the adverse effects or … withdraw the subsidy," which had led to a "genuine and substantial" cause of serious prejudice to the United States' interests.

The WTO ruling added that the United States had suffered significant lost sales in the twin-aisle and very large aircraft markets.

Washington previously said it wanted to impose tariffs of up to 100% on European exports to the U.S., with an annual trade value of around $11.2 billion a year.

In April, U.S. officials published a wide list of European products it said it would select from in an attempt to recoup the amount lost.

CNBC has learned that the United States trade representative is set to make its response later on Wednesday.

Europe responds

In an instant reaction to the award, the European Commissioner for Trade, Cecilia Malmstrom, said in a statement that any fresh tariffs levied by the United States would be "short-sighted and counterproductive."

Malmstrom said both the EU and the U.S. have been guilty of subsidizing Airbus and Boeing, respectively, and that a "mutual imposition of countermeasures" would only cause harm to businesses and people on both sides of the Atlantic.

The EU has said it wants a new regime on aircraft subsidies and to agree on a way forward with Washington. Malmstrom also said in her statement, however, that counter-tariffs were still on the table.

"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 said in the statement.

Airbus issued its own statement in which CEO Guillaume Faury said: "Airbus will continue working with its US partners, customers and suppliers, to address all potential consequences of such tariffs that would be a barrier against free trade and would have a negative impact on not only the US airlines but also US jobs, suppliers, and air travelers."

Faury added Airbus's US supply chain supports 275,000 American jobs across 40 states.

Market reaction

Shortly after the decision, Airbus shares erased losses to trade 0.22% higher for the session. The wider European Aerospace and Defense index slightly cut losses to trade lower by 1.2%.

European cars and auto parts shares trimmed some session losses but were still off on a down day for wider European markets.

Luxury stocks traded lower as well, although some of that selling is being ascribed to ongoing political turmoil in Hong Kong.

WATCH: US to impose tariffs on EU aircraft and agricultural products

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US government to impose tariffs on EU aircraft and agricultural products