The European Union is preparing retaliatory tariffs against the United States over subsidies to Boeing, significantly escalating transatlantic trade tensions hours after Washington vowed to hit the EU with duties over its support for Airbus.

The two sets of punitive measures are the latest twists in a 14-year-old dispute that the US and EU have fought at the World Trade Organisation, with each side accusing the other of illegally subsidising their main aircraft makers.

President Donald Trump’s administration on Monday said it would impose tariffs on $11 billion (€9.7 billion) in imports from the EU because of the European aid. The Office of the US Trade Representative (USTR) said EU support for Airbus had caused “adverse effects” when announcing the new measures, which would target European goods including jetliners, cheese, wine and motorcycles.

Target

The EU called the sum cited by the USTR “greatly exaggerated” and said preparations were under way to hit back. While the EU hasn’t disclosed the amount of American goods it would target, Airbus said the bloc would proceed with “far larger countermeasures against the US.”

The heightened tensions come as the 28-nation EU works toward approving a mandate for the European Commission to negotiate cuts in industrial tariffs with the Trump administration.

The new tensions may complicate those efforts, which are part of European attempts to ward off American threats of separate duties on foreign autos and car parts.

European officials underscored the option of reaching a negotiated solution with the US that would avoid an escalation with tit-for-tat tariffs.

“Whether the tariffs will enter into force will also depend on whether there will be an agreement between the EU and the US about the treatment of subsidies for the aviation industry,” a German economy ministry spokeswoman said.

“The EU is open to the US offer for dialogue in order to reach a fair solution.” The threatened American tariffs, which come after the WTO ruled in May that Airbus had received illegal funding for its A380 and A350 models, costing Boeing sales, would be implemented only after the WTO gave the final go-ahead this summer, the administration said, marking a rare show of faith in an institution that Mr Trump himself has assailed.

Airbus said in a statement that the US tariff threat was “totally unjustified” and that it had taken “all necessary measures” to comply with the WTO ruling regarding illegal aid.

Shares

Shares in Airbus fell as much as 2.3 per cent, the biggest drop in 2½ weeks, before trading 1.8 per cent lower in Paris on Tuesday afternoon. Aerospace suppliers including Rolls-Royce Holdings and Meggitt were also priced lower.

The proposed measures are relatively minor compared with the US’s ongoing trade war with China, in which the two sides have imposed tariffs on about $360 billion of each other’s goods in the past nine months. But they mark a significant escalation in tensions with the EU, which has implemented retaliatory duties on €2.8 billion of US imports following Mr Trump’s trade restrictions on foreign steel and aluminium.

Some EU members, led by France, are already sceptical of the value of negotiations with the US, which were agreed to last July in a bid by the EU to avoid auto tariffs Mr Trump has threatened.

Furthermore, a draft of the mandate seen by Bloomberg specifically gives the EU an opt-out if the US were to impose new tariffs.

“It’s in the interests of the US and the EU to find a friendly accord on the issue of penalties in the airplane sector,” French finance minister Bruno Le Maire said. “When I see slowing world growth, I don’t think that we can afford a trade war, even if it’s just in one industrial sector.” – Bloomberg