On Monday, October 14, the World Trade Organization formally authorized the United States to impose tariffs of up to $7.5 billon on European Union goods imports. This came after 15 years of dispute between the European Union and the United States. The United States first brought up complaints in 2004 on the development of the Airbus A350 and A380.
The World Trade Organization is the global international body that negotiates trade agreements and settles disputes on rules of trade between member nations. It was established on Jan. 1, 1995, and includes 164 members, representing 98 percent of world trade. Both the United States and the European Union are members of the organization.
A World Trade Organization arbitrator already had awarded the United States the right to retaliate over what it deemed illegal subsidies by the European Union to Airbus. Airbus is a company in the Aerospace and Defense industry manufacturing in Britain, France, Germany, and Spain. The World Trade Organization found that both Airbus and its U.S. competitor Boeing received billions of dollars of illegal subsidies. The case for Boeing is expected to be adjudicated early next year.
U.S. officials said they will impose a 10 percent tariff on Airbus planes as well as a 25 percent tariff on a select variety of European Union products. This tariff is deemed to recover the $7.5 billion loss from the authorized imposition by the World Trade Organization of tariffs on European Union goods.
Arkansas’ largest export industry is Aerospace and Defense, with exports of $1.5 billion – 23 percent of Arkansas exports — during 2018 alone. At the same time, the third largest export market during 2018 was Europe, with over 22 percent of all Arkansas exports sold to the group of nations.
If the U.S. goes forward with these planned tariffs, however, the European Union has stated that countermeasures on U.S. tariffs are a possibility and such actions have been triggered in the past. This would mean that if the U.S. imposes tariffs on European Union products, the European Union would in turn impose tariffs on U.S. products entering to the European Union. Once the United States releases the specific list of products that will have a tariff if a negotiated agreement is not reached, we will understand in more detail the potential impact to Arkansas consumers, businesses, and farmers. Likewise, if the European Union decides to implement countermeasures, we will then be able to assess more accurately how that action may impact Arkansas.
Although Arkansas has a diversified economy, the aerospace and defense industry is the largest by dollar amount, and agriculture and agribusiness is the largest volume-wise. These two industries potentially could feel the largest impact in Arkansas from this trade dispute as a result of imposed tariffs from one or both sides.
The mission of the World Trade Center Arkansas is to grow trade and increase Arkansas exports by connecting Arkansas businesses to the world through international trade services. The Center is part of the University of Arkansas and serves as the trade promotion arm for the Arkansas Economic Development Commission. For more information and valuable updates, please follow the Center on Facebook and Twitter or subscribe to the World Trade Center Arkansas newsletter.
Melvin Torres is the director of Western Hemisphere Trade for the World Trade Center Arkansas. He has managed cross-functional teams as a vice president, a director, and a general manager at some of the world’s strongest companies including Citibank, General Electric and Commerce Bank.