Airbus Says Trump Tariffs After WTO Ruling Will Cost U.S. Jobs

(Bloomberg) --

Airbus SE said American jobs are at risk as President Donald Trump prepares to slap a 10% tariff on its planes after the World Trade Organization authorized $7.5 billion in U.S. duties against the European Union.

The levies will “have a negative impact on not only U.S. airlines but also U.S. jobs, suppliers and air travelers,” Chief Executive Officer Guillaume Faury said after the WTO ruling Wednesday, adding that they’ll bring “insecurity and disruption” to the wider aerospace industry.

Airbus Says Trump Tariffs After WTO Ruling Will Cost U.S. Jobs
Airbus Says Trump Tariffs After WTO Ruling Will Cost U.S. Jobs

While the U.S. will impose a heftier 25% rate on agricultural products and other industrial items, according to a U.S. Trade Representative official, the high cost of commercial aircraft -- which sell from about $100 million at list prices -- means the aerospace industry is especially vulnerable to any effective price hike.

“A 10% tariff on a bottle of wine may not deter the Bordeaux aficionado, but the same for an Airbus plane may lead a U.S. airline to defer delivery,” said Sandy Morris, an analyst at Jefferies in London.

Two-fifths of the components that make up an average Airbus jet come from the U.S., according to the planemaker, which faces levies alongside a host of other EU companies after the trade body found that it received illegal aid. That helps support 275,000 jobs in 40 states through spending that totaled $50 billion in the past three years, a figure it aims to double over the next decade.

Airbus Says Trump Tariffs After WTO Ruling Will Cost U.S. Jobs

Airbus has also been delivering A320 single-aisle jets from a final assembly line in Mobile, Alabama, since 2016 and added the A220 model in August. The Mobile site separately designs cabins and cargo systems for the entire aircraft range, while a facility in Wichita, Kansas, specializes in engineering design. The Airbus CEO’s statement came before the U.S. commented on the level of tariffs facing the company.

The WTO announcement marks the latest chapter in the body’s longest-running dispute, which also involves EU claims against Airbus rival Boeing Co. The feud is further testing trans-Atlantic relations that have deteriorated under Trump’s “America First” strategy.

Airbus had almost 900 unfilled orders from U.S. customers at the end of August, compared with Boeing’s EU backlog of close to 600 jets.

The European company closed 2% lower in Paris, while Boeing fell 2% in New York amid reports that an employee filed an internal complaint relating to the rejection of a safety system that could have reduced risks that led to fatal crashes involving the 737 Max jet.

Airbus urged the U.S. to take account of a looming WTO decision on a parallel case regarding the size of tariffs Europe can impose over subsidies paid to Boeing, saying they could exceed the value of the U.S. sanctions and repeating calls for a negotiated settlement.

Tit-for-Tat

European Trade Commissioner Cecilia Malmstrom said in a statement that the bloc shared “concrete proposals” for a new regime on aircraft subsidies and a way forward for existing compliance obligations as recently as July, but that the U.S. has not so far reacted.

Malmstrom added that Europe will respond in kind to U.S. countermeasures, while warning that a tit-for-tat escalation will harm global trade and the aviation industry, and that a “fair and balanced solution” must be sought.

U.S. carriers have also pushed back against levies, with trade group Airlines for America saying tariffs on aircraft would be “unprecedented” and negatively impact both the country’s aviation industry and economy.

Boeing said Toulouse, France-based Airbus and other European businesses face tariffs because its aerospace rival refused for years to conform with WTO rulings. The U.S. manufacturer said it’s not too late to avoid the levies if Airbus comes into “full compliance with its obligations.”

Whiskey, Ketchup

The WTO award is lower than the Trump administration’s request to impose tariffs on $11.2 billion of European exports.

The EU has published a preliminary list of U.S. items it plans to target in a $12 billion plan for retaliatory levies, spanning ketchup to video-game consoles. The Geneva-based WTO is expected to announce the actual sum that can be imposed some time in the first half of next year.

The bloc could seek to hit back before then by reviving a 2002 WTO ruling allowing it to impose tariffs on more than $4 billion of U.S. exports, according to people familiar with the plan. The issue concerned a tax arrangement that provided American companies with an unfair advantage, though it was considered to be settled in 2006 when lawmakers repealed the measures.

©2019 Bloomberg L.P.

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