Tariffs sparked by Airbus, Boeing subsidy fight suspended for four months


Oregon restaurant owner Andrew Fortgang is eagerly awaiting the May reopening of his French restaurants after a year of pandemic closings. But the Chablis and Beaujolais will go down a bit easier if he can win another battle: eliminating a 25% tariff on wine, cheese and other European products caught in a cross-Atlantic battle over airplane parts.

The Biden administration and European Union agreed in March to suspend the tariffs for four months as they seek a “fresh start” in resolving a long-running fight over government subsidies to Airbus and Boeing. The dispute and judgments before the World Trade Organization triggered tit-for-tat tariffs on agricultural products that have nothing to do with aerospace but have given food professionals heartburn since late 2019.

The levies have forced companies up and down the supply chain to stomach smaller profit margins or to raise prices on consumers. Restaurants were hit hard by the pandemic and say they can ill afford a return of those markups.

“We’re done with surprises. We need that stability and need to be able to plan and move forward with confidence that these aren’t going to come back into play,” Mr. Fortgang, a co-owner and wine director at his Portland restaurants, told The Washington Times.

Bottles that once cost Mr. Fortgang about $20 are now $25, and it only gets worse for the high-end beverages such as scotch and Burgundy. With names Le Pigeon and Canard, his restaurants have an unmistakable French bent, so he can’t just pour products from Australia or Chile.

“It’s not like a fungible thing you can just trade one for another. That’s not why people come,” he said.

Even if he wanted to switch things up, the tariffs have destabilized the wine industry as a whole, making it difficult for distributors to serve clients, whether they trade in European wine or American bottles from famous vineyards in Washington state, Oregon and California.

The World Trade Organization approved the tariffs after 15 years of litigation over EU subsidies to Airbus. The U.S. said the subsidies were illegal and harmed American companies such as Boeing. The WTO agreed and granted the U.S. a $7.5 billion arbitration award under President Trump, who frequently wielded tariffs as a negotiating tool.

The levies targeted aerospace products and agricultural goods, including British cashmere, German roasted coffee and Spanish olive oil.

Meanwhile, Europe hit U.S. ketchup, orange juice and other goods with $4 billion in tariffs in November after the WTO ruled that Europe could retaliate for what it said were illegal U.S. subsidies to Boeing, an Airbus rival.

Gabriella Beaumont-Smith, a macroeconomics policy analyst at The Heritage Foundation, said the new administration’s pause of tariffs in March was an act of good faith as it tries to put European relations on good footing.

Yet President Biden and U.S. Trade Representative Katherine Tai will be under the gun to ax the tariffs completely.

“I don’t think that four months is long enough, and they should be lifted entirely on both sides,” Ms. Beaumont-Smith said of the tariffs. “They are harmful to American consumers, and European consumers as well.

“It is the worst time for the administration if it were to reimpose these tariffs,” she said. “People have gone through a lot of hardship, and they don’t have to deal with more expense and more bureaucracy. I think the pandemic does create more pressure.”

The Biden administration says it is committed to “a comprehensive and durable negotiated solution” to the aircraft dispute.

“Key elements of a negotiated solution will include disciplines on future support in this sector, outstanding support measures, monitoring and enforcement, and addressing the trade distortive practices of and challenges posed by new entrants to the sector from non-market economies, such as China,” the U.S. Office of the Trade Representative said in announcing the pause of tariffs.

Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, said he would expect both sides to extend the deadline if they can’t strike a deal during the four-month pause.

“I would be surprised to see the tariffs reinstated. That would put a real cloud on Biden’s charm offensive with Europe,” he said. “The only thing that would trip up a resolution would be some new, unforeseeable challenge from Europe.”

As talks commence, he said, Europe may agree to limit its “launch aid,” in which countries loan huge sums to Airbus to produce new aircraft models and get repaid as models are sold. He said terms could call for commercial interest rates and full repayment of loans even if sales of models fall short in a given time frame.

U.S. restaurant owners and food purveyors, including the Specialty Food Association, say too many people would suffer if negotiators can’t reach a deal.

“There are no winners in trade wars, and these incremental taxes created an additional burden on the food industry that was already suffering due to COVID-19,” Thomas Gellert, president of importer Atalanta Corp., said last month. “We are optimistic that now, as we see some hope for the food service market, restaurants can provide their guests the products they demand without this additional tax.”

Mr. Fortgang’s restaurants were shut down in March 2020 and reopened at limited capacity from June to November, before closing again. They plan to reopen during the first week of May.

When conditions are normal, “you can afford to pay an extra buck or two for the Iberico ham or bottle of Sancerre you’re serving. You can absorb that,” Mr. Fortgang said of the tariffs.

But it’s a different story when you’re operating at half capacity or recovering from a once-in-a-century health crisis.

“We’re still in an uncertain time as far as COVID, as far as the long-term effects on economic and the long-term effects on consumer behavior,” he said.

If the levies return, then people on the payrolls of businesses with tight margins will suffer the most.

“The super, super-wealthy people, they’re going to be fine. They’re going to buy [these products] and not care,” Mr. Fortgang said. “It’s really about the jobs it hurts here on this side of the pond.”

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