Yesterday the U.S. announced it was going to impose tariffs on EU goods after WTO’s Airbus Ruling. As soon as October 18, imported products from the EU will come with steeper prices. For our audience, the crucial number is 10% on imported aircraft. We expect much of our audience is equally chagrined to know that 25% levies on a range of other items including Irish and Scotch whiskeys, wine, olives, and cheese were included.

Late yesterday an Airbus Americas spokesman shared this: “Airbus has learned of the United States Trade Representative’s (USTR) publication of the list of European Union products upon which the United States intends to impose tariffs, which would include commercial aircraft.

This development comes in relation to the decision of the World Trade Organization (WTO) regarding the level of countermeasures it authorized the US to impose on products from the EU. That decision still needs to be formally adopted in the coming weeks by the WTO.

We are evaluating the final list and its possible consequences in close collaboration with the European Commission.

In a few months’ time, the WTO will give the EU its own basis on which to seek countermeasures against the US. The amount of the EU’s countermeasures may equal or exceed the countermeasures authorized by the WTO to the US.

Airbus considers that the only way to prevent the negative effects that these countermeasures would create will be for the US and EU to find a resolution to this long-running dispute through a negotiated settlement before the tariffs become effective.”

We think imposing tariffs is a sure-fire way to more madness. In 15 years of back and forth, neither side has made any progress. Has anyone bothered to calculate the cost? Only the lawyers have won. No action by the US will go unanswered. We do not live in a unipolar world.

Because of leasing companies, the orders and deliveries for Airbus and Boeing are not easy to define by customer location. For example, does a US leasing firm get the tariff though the operator is based outside the US? There is talk that the tariff applies to the country of the operator.

We tried to unpack the orders and deliveries data. Looking at the two sides this is what we think the score looks like in terms of backlog:

This move by the US is almost certainly is going to see a “tit for tat” tariff. But it gets worse – what if EASA decides to slow-walk the MAX return to service? This is surely not what Airbus wants – neither OEM benefits by bringing in regulations and politics. But having started the political process, the US has opened a potential Pandora’s Box. The US (and Boeing) cannot call this a “win”.

Now, hopefully, comes the horse-trading. The EU might, for instance, offer the US approval of the Boeing/Embraer tie-up to make this nonsense go away.

© 2019, Addison Schonland. All rights reserved.