The European Union recently announced tariffs of $3.99 billion on U.S. aircraft, as well as a range of agricultural and industrial goods. It’s the latest move in a long line of moves related to a dispute between the United States and the EU concerning the subsidizing of aircraft production. As is frequently the case, U.S. food and agriculture are being dragged into a dispute they had nothing to do with. As the “tip of the spear” in trade disputes, U.S. agricultural-producer goods are often first on the list in retaliatory tariffs, regardless of the type of goods and services directly related to the dispute.
Boeing dispute explained
The disagreement between the two countries boils down to the EU and the United States each claiming that the other’s airplane manufacturer is unfairly subsidized. That’s not a recent development; the case originally dates to at least 2006 when the United States first filed a case with the World Trade Organization. The original case alleged that Airbus received billions in illegal subsidies. The EU filed a counter case alleging Boeing received billions in trade-distorting subsidies for its research and development projects. As happens in such cases, the World Trade Organization found both sides at fault through the years.
The back and forth continued until October 2019, when the World Trade Organization allowed the United States to impose tariffs of as much as $7.5 billion in EU goods. That figure constitutes the largest award in the history of the World Trade Organization. Currently, about a year after that ruling, the World Trade Organization has ruled in the EU’s favor. In October the EU won an arbitration award in the case. The World Trade Organization Dispute Settlement Body authorized the EU to impose retaliatory tariffs of $4 billion on U.S. goods. The United States and the EU have both indicated their willingness to reach a negotiated settlement to the underlying dispute.
EU takes aim at ag
The EU released Nov. 9 the long-anticipated list of U.S. goods targeted for tariffs. The list has two different tiers for tariffs.
- The first tier is limited to certain types of civilian aircraft at a rate of 15 percent.
- The second tier applies to a range of food, agricultural and industrial goods at a rate of 25 percent.
As Figure 1 shows, food and agricultural goods comprise a disproportionate number of the EU’s overall tariff lines. Unfortunately for agricultural producers, the targeting of farm and ranch goods for tariffs has become a somewhat normal occurrence. But the total number of tariff lines can be quite misleading because many of them are goods the EU doesn’t import from the United States.
Therefore it’s helpful to have a better understanding of the types of goods targeted for retaliation by the EU. The list is skewed toward processed food and agricultural goods rather than bulk agricultural commodities. When looking at the most recent EU import data, the targeted goods in food and agriculture amounted to almost $1.4 billion in 2019.
Food, agricultural goods impacted
Not all tariff lists are created the same; they tend to vary in their impact on the many goods listed. But there are several key products that fare worse than most and comprise a bulk of the total amount of the goods by value that are selected for retaliation. Figure 2 shows the preference of the list for more-processed food and agricultural goods. The most impacted group comprises alcohol, tobacco and cotton. The EU targeted U.S. liquor and wine producers heavily, and it shows in that list. The fact that the next-largest category is oilseeds, oils and fats shows the list takes aim at ingredients used in food manufacturing more so than raw agricultural commodities.
Table 1 shows the top-10-affected tariff lines. The table largely reflects the pattern displayed in Figure 2 but is more granular. It shows the individual products the EU is targeting. The most targeted product in terms of import value is rum, followed closely by flue-cured tobacco. The top-10 products are a mix of processed foods, frozen seafood, and various vegetables and nuts.
The European Union announced Nov. 9 the bloc would impose tariffs of $3.99 billion on U.S. aircraft, as well as a range of agricultural and industrial goods. It’s the latest move in a long line of moves related to a dispute between the United States and the EU concerning the subsidizing of aircraft production. The list of tariff codes has two different tiers – certain types of civilian aircraft at 15 percent, and a range of food, agricultural and industrial goods at 25 percent. Not all of the lines listed by the EU are imported in significant quantities. Many of the EU’s tariff lines are not even imported from the United States. The EU’s list is skewed toward processed food and agricultural goods, as opposed to bulk agricultural commodities. The agricultural goods most impacted are alcohol, tobacco and cotton. As is frequently the case, U.S. food and agriculture producers are unfortunately being dragged into a dispute they had nothing to do with.