Realist, not conformist analysis of the latest financial, business and political news

US Makes Americans Poorer With Tariffs – EU Retaliates To Make Europeans Poorer

If you’d like to see the lunacy with which governments – politics that is – discuss and act upon trade there’s nothing better than this story about the illegal subsidies to Airbus. The European Union – and associated governments – have been providing launch subsidies so that Airbus can get failures like the A 380 off the ground. This breaches World Trade Organisation rules, as the WTO has ruled. Such subsidies of course make Europeans poorer and also Americans richer. It’s the European taxpayer who coughs up for them and the American consumer who in part gains from the greater competition.

So, what should be done about all of this? Obviously enough, stop impoverishing Europeans through industrial subsidies. But then?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The United States is threatening to impose tariffs on European goods worth billions of dollars, intensifying a long-running dispute over aircraft subsidies. The United States Trade Representative proposed levies on hundreds of categories of exports on Tuesday in retaliation for the European Union allegedly providing subsidies to Airbus (EADSF).
The goods range from Airbus jets and their components to European staples like wine, cheese and frozen fish.
These exports are worth about $11 billion every year to European countries, roughly equal to the damage the United States believes the subsidies inflicts on Boeing (BA) and the US economy. [/perfectpullquote]

Damage to Boeing? Sure. But the US consumer does benefit by Airbus and the competition it brings. That competition limiting Boeing’s profit margins. Exactly that there is damage to Boeing is what benefits the consumer.

But note what is to be done. Tariffs on EU imports into the US are of course paid by US consumers. Either they can’t get what they want as a result of tariffs so high the imports don’t happen, or they can but pay higher prices. So, who suffers? The American consumer. The US government wants to punish European governments and is going to do so by making American consumers worse off. Hell, I’m frightened by that, aren’t you?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The European Union is preparing retaliatory tariffs against the U.S. over subsidies to Boeing Co., significantly escalating transatlantic trade tensions hours after Washington vowed to hit the EU with duties over its support for Airbus SE. The two sets of punitive measures are the latest twists in a 14-year-old dispute that the U.S. and EU have fought at the World Trade Organization, with each side accusing the other of illegally subsidizing their main aircraft makers. President Donald Trump’s administration on Monday said it would impose tariffs on $11 billion in imports from the EU because of the European aid. [/perfectpullquote]


[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The European Commission spokesman also said Tuesday that Brussels is ready to retaliate in kind, noting that in the parallel Boeing dispute, “the determination of EU retaliation rights is also coming closer and the EU will request the WTO-appointed arbitrator to determine the EU’s retaliation rights.”[/perfectpullquote]

The American government has decided to make Americans worse off and the EU is going to respond to this provocation by making Europeans worse off?

They’re all barking mad, aren’t they? But then, yes, actually, they are. For they’ve all forgotten – or more likely never knew – the basic truth about trade. Imports are our gain from it, exports the cost we must pay. All of these governments are operating on the opposite assumption, that exports are good, imports bad.

And if you’d like to have a reason why the world’s in the state it is there’s a good example. The people who rule us are barking mad – and where not, simply ignorant.

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