US President Joe Biden is in Europe as he seeks to reestablish ties with traditional American allies that had become increasingly strained during the tenure of his predecessor Donald Trump, in part thanks to the tariffs he imposed on billions of European goods.
Biden and European Union leaders will pledge on Tuesday to end trade disputes over aluminum, steel and aircraft, according to a draft statement from the US-EU summit next week.
The draft says the two allies will pledge to end the nearly two-decade Boeing-Airbus dispute by July 11 and lift punitive tariffs linked to the steel and aluminum trade dispute by July 11. 1st December.
Talks to ease tariffs come as transatlantic allies witness a sharp rise in prices, supported by supply chain issues such as a shortage of shipping containers, high commodity prices and pent-up demand for consumers that businesses affected by the pandemic are struggling to meet.
Tariffs on steel and aluminum
In 2018, President Trump left his European allies in dismay by imposing tariffs of 25% on imports of European steel and 10% on aluminum, saying they endangered national security.
The Trump administration used Section 232 of the 1962 Trade Expansion Act – a Cold War relic that was rarely used before it became a weapon of choice for Trump – which allows the United States to impose tariffs or ” other trade restrictions to trading partners on security grounds. Trump said the EU’s “unfair” trade policies put the existence of critical US industries at risk. The president threatened to impose duties on the European auto industry on similar grounds.
The response from the EU, which called the move “outright protectionism”, was swift and harsh. He retaliated by imposing tariffs on 2.8 billion euros ($ 3.39 billion) of American goods like jeans, bourbon whiskey, peanut butter, orange juice and motorcycles.
Trump extended tariffs on 6.4 billion euros of annual steel and aluminum imports from the EU last year, prompting the bloc to threaten new tariffs on the EU. American lighters and plastic accessories for furniture, among others.
In May, just a month before President Biden’s first visit to Brussels as head of state, the two sides agreed not to escalate the dispute. The EU suspended for six months its plan to double retaliatory tariffs on US goods from June to restart negotiations.
Airbus Boeing conflict
This dispute, one of the oldest at the World Trade Organization – was not Trump’s handiwork, but it came to a head during his tenure with billions of dollars worth of goods from the EU and the US targeted by punitive tariffs.
In 2019, the WTO authorized the United States to impose tariffs on up to $ 7.5 billion (6.2 billion euros) of EU goods, the biggest reward for the history of the trade body, after ruling that the EU had backed Airbus with subsidized loans. The global body also found that the loans, which were repayable upon delivery, constituted illegal aid.
A year later, the world trade body authorized the EU to impose tariffs on $ 4 billion worth of US goods in a counter-case. The WTO ruled that Washington’s favorable contract terms and tax breaks for Boeing had hurt Airbus sales.
In March, the two sides agreed to temporarily suspend tariffs, which targeted planes, sweet cookies, wines, ketchup and cheese, as they sought to settle the dispute.
Negotiations between the two sides come at a time when the coronavirus pandemic has taken a heavy toll on the aviation industry, with much of international travel still on hold.
Digital services tax
The Trump administration has threatened to impose tariffs on $ 1.3 billion of French goods, including handbags, cosmetics and soaps in retaliation for the 2019 French government’s decision to impose a 3% tax on income earned domestically by global technology companies such as Amazon, Google and Facebook.
Paris argued that big tech companies had not paid their fair share of taxes by diverting part of their profits to low-tax jurisdictions. Washington said the tax was discriminatory and unfairly targeted American businesses.
Tariffs were suspended earlier this year as the United States 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 on their taxes on digital services, but immediately suspended tariffs to allow du time for the negotiations led by the OECD to overhaul the international tax system.
Just before Biden embarked on his European tour, the G7 rich country group struck a deal to ensure that big companies pay more taxes in the countries where they do business.