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US Offers Olive Branch on Retaliatory Tariffs in EU Airbus Dispute

Instead of hiking the tariff rate on European Union goods as it has threatened to do, the U.S. has instead opted to adjust the items that would be taxed.

The U.S. currently enforces tariffs on $7.5 billion worth of goods from the EU and the U.K. as a result of a World Trade Organization (WTO) arbitration decision on damages stemming from Airbus subsidies, the subject of a 14-year dispute between the EU and U.S., which believes the breaks hurt its domestic aviation giant, Boeing. The U.S. moved quickly to impose tariffs on EU imports to pay down the amount of damages owed.

The original list of EU imports that were targeted for new duties last year includes items such as handbags over $20, sweaters and vests made from wool, and cashmere from Kashmir goats and cotton, in addition to apparel items like men’s and boys’ suits and women’s and girls’ cotton pajamas.

Meanwhile, the dispute over aircraft subsidies could escalate come fall when the WTO is expected to give the EU the nod to hit the U.S. with tariffs of its own in connection with subsidies for Boeing. The U.S. received WTO approval last year because its dispute was further along in the arbitration process.

The U.S. list imposes tariffs on goods that have a trade value of $21 billion. The EU is said to be planning retaliatory tariffs on about $39.1 billion worth of U.S. imports. Currently, the U.S. has a 15 percent tariff on imports of Airbus aircraft and a higher 25 percent tax on select European imports. Both the U.S. and the EU have been in talks to resolve their dispute. By not hiking the tariff rate, the U.S. is seen as extending an olive branch and furthering discussions to resolve the dispute once and for all.

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The Trump administration on Wednesday made minor adjustments to the list of items to be taxed, part of a semi-annual review of retaliatory duties. In the latest change, Greek and German cheeses were taken off the list, along with Scottish shortbread imports. New to the list of items to be taxed include French and German jams.

The latest moves aren’t a surprise and, if anything, reflect a punishment of sorts to countries whose economic policies aren’t aligned with U.S. goals. One example is the push by France to impose a digital services tax. The U.S. has argued that such a tax would hurt large American tech corporations that do business overseas. The two countries put on hold the implementation of a digital services tax through January 2021 to give both sides time to negotiate a resolution.

Still, the new EU tariff on French jams seems to serve as a not-so-subtle message from the U.S. that France should get in line or risk either higher tariffs at the next review or see more French goods on the list for retaliatory tariffs. In the case with Germany, the U.S. hasn’t been happy with the country’s miss on a NATO defense spending target.

Separately, the U.S. and U.K are in the middle of negotiating a bilateral trade agreement, making the removal of Scottish shortbread appear to be a conciliatory move. Depending on how talks go, the next review six months from now could see either additional items get added to the tariff list or items such as cheese or single-malt Scotch whisky get taken off.