Making airplanes is one of the most prestigious things countries can do, a testimony to their technical skills, engineering prowess and aspirations on the world stage. It can be a source of national pride, but also a trade flashpoint. Nothing illustrates this more than the global rivalry of Boeing Co. and Airbus SE, the Coke and Pepsi of the skies. The U.S. and European Union have been fighting over subsidies to their respective aircraft industries for nearly two decades and now many companies on both sides of the Atlantic have become collateral damage in their tariff dispute.

1. What’s the fight about?

State aid, the increasingly common practice of governments doling out support to key manufacturers or industries. In 2004 the U.S. lodged a legal case at the World Trade Organization against the EU for its member state support to Airbus. In 2011 the WTO ruled that the EU provided Airbus with billions of dollars of illegal subsidized financing that enabled Airbus to launch its widebodied and short-haul planes. The EU opened a parallel case against the U.S. that successfully argued Boeing benefited from state subsidies as well as space and military contracts, which defrayed the cost of civilian aircraft development. The cases continued to wind their way through the WTO dispute process until 2019, when the WTO authorized the U.S. to retaliate with tariffs against $7.5 billion worth of EU exports annually. In October 2020 the EU won WTO permission to hit back with tariffs on $4 billion of American goods a year.

2. What kind of state aid did they get?

The governments of Germany, France, Spain and the U.K. provided Airbus with subsidies via launch-aid loans for aircraft development, equity infusions, debt forgiveness and various other financial contributions. The U.S. government provided Boeing with subsidies via federal research and development funding, state and local tax programs and infrastructure-related funding. Both the U.S. and EU allege that the other’s measures fail to adhere to the WTO’s Agreement on Subsidies and Countervailing Measures, which governs the use of state aid programs.

3. Why is this flaring up again?

The U.S. is stepping up pressure on Germany and France with extra tariffs on some of their goods, a move designed to squeeze the 27-nation bloc into settling the dispute. That came after the EU targeted a $4 billion list of American products with levies on items such as aircraft, spirits, tractors and video games. The U.S. says the EU’s tariffs were excessive and claims the U.S. complied with the WTO ruling after Washington state eliminated its tax rate reduction for Boeing.

4. Why are these companies so important?

For more than 20 years Boeing and Airbus have maintained a duopoly in the large civil aircraft market, which is being squeezed as the Covid-19 pandemic reduces demand for new planes. Sales are commercially and politically important because they support thousands of jobs and represent a critical component of Europe and America’s overall trade balance. Geopolitical rivalry is baked into the relationship between the two companies. Airbus, based in Toulouse, France, was created half a century ago as a consortium bringing together the resources of European aerospace companies including France’s Aerospatiale, Germany’s Deutsche Airbus and Construcciones Aeronauticas SA of Spain. The political, industrial and technological aim was to challenge the dominance of U.S. passenger jet manufacturers: Boeing with its 707, 737 and 747 models, McDonnell Douglas with the DC-8, DC-9 and DC-10 range and Lockheed with its three-engined Tristar.

5. What is the U.S. endgame?

The U.S.’s original goal was to thwart launch aid financing for the Airbus A350 -- a rival to Chicago-based Boeing’s 787 Dreamliner. But Airbus had delivered more than 400 A350 aircraft by January 2021. At this point the only real benefit the U.S. can obtain, aside from applying retaliatory tariffs on European exports, is to prevent European launch aid financing for any new Airbus series at non-market rates. Both sides say they want to reach a settlement, potentially in the form of a new bilateral aircraft accord.

6. Can this be resolved without more tariffs?

A resolution proved elusive during Donald Trump’s presidency, but the EU is hopeful it will be able to reach a solution with his successor in the White House, U.S. President Joe Biden. The former Trump administration’s tariffs on European aircraft, wine and spirits, announced Dec. 30, disrupted immediate prospects for a settlement and the European Commission pledged to “engage with the new U.S. administration at the earliest possible moment.” While Biden has been silent on the dispute, his Secretary of State, Antony Blinken, has previously called for patching up transatlantic relations and ending Trump’s “artificial trade war” with Europe.

7. Does Brexit affect this dispute in any way?

The U.K., which was sued by the U.S. both individually and as an EU member, has been subject to 25% U.S. tariffs on key exports like Scotch whisky since 2019. In January the U.K. unilaterally dropped its retaliatory duties against the U.S. stemming from the Boeing dispute as a means to reduce trade tensions between the two countries. In March the Biden administration reciprocated by suspending its duties on U.K. exports for a period of four months so the U.S. and U.K. can focus on negotiating a “balanced settlement.” The U.S. tariffs on EU goods still remain in place.

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