Hello there from Washington, where we still eagerly await the appointment of Joe Biden’s new USTR. In other news, Donald Trump’s legal efforts to block Biden’s victory by challenging the election results in several states are winding up — on Tuesday the US Supreme Court rejected a request by Pennsylvania Republicans to undo certification of Biden’s victory in the state.
Our main piece today is on the latest episode of the Airbus-Boeing dispute, but this time it’s a Brexit edition. Our person in the news is Christopher Waller, the Trump administration’s likely last appointment to the Fed’s board.
UK’s unusual tariffs move
Just when we thought the decades-long dispute between the US and several European countries over how to fairly subsidise aircraft manufacturing was settling down, the UK throws a Brexit curveball.
Firstly, a brief recap. The UK, as part of the EU, was given permission to put tariffs on US goods of up to $4bn in retaliation for US state aid for Boeing, the aircraft manufacturer. The delayed WTO decision left Europe feeling aggrieved — the US was given permission to put tariffs on European goods of up to $7.5bn last year over European subsidies for Airbus. The US has since hit French wine, Italian cheese, and Scotch whisky with charges.
The UK and others had hoped to be able to negotiate away the US tariffs once the WTO had given them the authority to impose their own tariffs on US goods. The US tariff on Scotch whisky, a proud national industry, is particularly irksome to British officials who see it as inflaming political tensions in the increasingly fragile United Kingdom, stoked by the growing popularity of the Scottish National Party.
But on Tuesday afternoon, the UK declared that one of its first trade actions as a country free of the shackles of the EU would be to not put the Boeing tariffs on the US. This, the UK says, is to help improve the trade relationship between the UK and the US — who are trying to come up with a trade deal — and to “de-escalate tensions”. It wants to show the US — as well as Airbus and Boeing — that it’s serious about reaching a negotiated outcome on aircraft subsidies.
It’s worth noting that it’s extremely unusual, in trade negotiations, for any one party to remove tariffs, or give up the right to impose tariffs, without securing something concrete in return. Making this even stranger is the fact that the US has already imposed tariffs on the UK over the parallel part of this dispute (state subsidies for European aircraft maker Airbus), so the UK is effectively choosing not to retaliate.
While the UK is trying to present itself as magnanimous, one possible explanation for its stance is the legal uncertainty surrounding the UK’s position once it leaves the EU.
When filing its complaint, the US lodged its case against the EU, UK, France, Germany and Spain. When the European countries filed their counterpart case, however, they filed it together as the European Union — meaning it is the EU, which the UK is about to leave, that is allowed to put those tariffs on the US, and not the UK as a member state. By this interpretation, which is held by officials in Brussels, the US can continue with its tariffs on whisky and the UK cannot retaliate.
This is an unprecedented situation, but it could be possible for the UK to still apply a portion of the EU’s tariffs on the US if it could reach an agreement with the EU. The US would also have to recognise any EU-UK agreement as legitimate. The UK might have decided not to pursue this option, fearing it would be seen as overly aggressive. But now, by declining to apply retaliatory tariffs, the UK has given the US a gift and secured nothing in return.
Meanwhile, the US-UK relationship is hardly improving. The US is currently busy probing the UK over its digital services tax and is widely expected to come out and conclude that London is engaging in unfair trade practices that could lead to more tariffs on UK goods. On Airbus-Boeing, where the US and Europe (and the UK) are supposed to be negotiating an agreement on state subsidies, there is now little incentive for US trade representative Robert Lighthizer, who is famously transactional, to seriously engage with the UK. London has surrendered its leverage and hopes Washington will play nice in return.
Presumably, it has faith that the Biden administration will take this olive branch and reciprocate by removing its tariffs on UK goods, including whisky. That seems unlikely.
More likely, the UK will be expected to make offers to secure the removal of the US’s Airbus-Boeing tariffs — and it just lost a bargaining chip.
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Person in the News
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