What's going on?
The US has threatened Europe with more tariffs – on products worth $4 billion, including Scotch whisky and Italian cheese. That probably won’t reduce Americans’ pizza consumption, though…
What does this mean?
The beef on this slice of the global trade dispute stems from subsidies that America and Europe offer their respective aircraft manufacturers, Boeing and Airbus. The idea’s that government support encourages innovation, helping them to be globally competitive. And the governments get some of that back through taxes and the contributions these companies make to growing the economy.
The US has argued that Airbus’s subsidies aren’t legal and cost America $11 billion a year. But Boeing’s received illegal subsidies from Uncle Sam too – and Europe’s not happy about it. The US’s proposed tariffs are awaiting approval… and Europe’s own counter-tariffs are too. Last month’s Paris Air Show – in which orders for Airbus’s planes soared past those for Boeing’s – probably only added fuel to the fire.
Why should I care?
The bigger picture: Europe can’t catch a break.
The US and China agreed to pull their trade punches last weekend, but Europe had no such luck. The European Union did sign its biggest trade deal ever, with major South American countries – as well as one with Vietnam. But while the eurozone’s economic data remains weak, it’ll likely want to make up with the US and avoid further trade disruption. Still, a wee dram may numb the pain.
For markets: The enemy of my enemy…
Airbus and Boeing’s shares descended on Tuesday, perhaps as any resolution may involve both losing some government support. Global companies headquartered in Europe that fear becoming tariff targets may follow in the footsteps of AB InBev, the world’s largest brewer. It’s focusing on Asia, selling shares of its business there – in the year’s biggest initial public offering so far – to help fund expansion plans in the region (tweet this). We hear beer goes well with pizza…