US and EU end aviation trade spat and turn to China's rise

“The Biden administration is clearly eager to de-escalate tensions with traditional allies while rebuilding a common front with them in getting tougher on China,” said Eswar Prasad, the International Monetary Fund’s former China chief. “In tandem with renewed U.S. leadership of the [Group of 7], it is becoming evident that the major Western economies are now uniting in their attempts to rein in what they view as unfair Chinese trade and economic practices.”

That will be a delicate task for Europe, which does a large amount of trade with China and does not see Beijing as a peer rival or a military one, as Washington increasingly does. But Europe has also understood that China’s open ambitions under Xi Jinping and its abuse of trading rules abroad and human rights at home make it a much more complex partner.

The EU now identifies China as “an economic competitor and a systemic rival,” no longer believing, as German Chancellor Angela Merkel has long argued, that trade and engagement will bring about political moderation there.

Michael Pillsbury, a Hudson Institute scholar who was one of Trump’s top China advisers, cautioned that the Biden administration would “find it’s much tougher than they thought to get these allies to openly side with the U.S. on China strategy because of the Europeans’ heavy dependence on the China export market.” That includes Germany’s significant reliance on Chinese auto purchases.

German officials say they will need time to alter their export-driven economy that is currently so dependent on China, understanding that the Chinese will soon be able to manufacture for themselves some of the sophisticated machine tools they currently buy — and try to copy — from more advanced European firms.

The detente on Airbus and Boeing came as Biden met top European leaders in a U.S.-EU summit that also endorsed a new joint Trade and Technology Council to more formally consult on trade and technical standards. Part of the purpose of the council is to agree on how to limit Chinese digital ambitions in fields such as artificial intelligence and cybersecurity and screen Chinese investments in those areas that could have security implications for Europe and the United States.

A senior U.S. official said the council would operate as an interagency body and coordinate with Brussels in priority areas such as standards for artificial intelligence, quantum computing and biotechnology, supply-chain resilience and export controls. European officials said its work would probably start with sensitive issues such as semiconductors and 5G infrastructure.

The Boeing-Airbus agreement followed two days of intense negotiations here between Katherine Tai, the U.S. trade representative, and Valdis Dombrovskis, the EU trade commissioner. European member states approved the deal overnight.

“This really opens a new chapter in our relationship because we move from litigation to cooperation on aircraft — after 17 years of dispute,” said European Commission President Ursula von der Leyen.

After the meeting, Biden flew to Geneva, where he will meet President Vladimir Putin of Russia on Wednesday. Biden will be able to present himself there as the leader of the Western democracies, having first been to summit meetings of the G-7, NATO and now the EU, where he has consulted extensively with allies.

“I’ve been making the case that the U.S. and Europe — and democracies everywhere — are stronger when we work together to advance our shared values like fair competition and transparency,” Biden said in a statement. “Today’s announcement demonstrates exactly how that can work in practice.”

In a briefing for reporters on the aircraft deal, Tai said both sides had agreed to extend a suspension of tariffs for five years while working together to counter China’s investment in the aircraft sector, especially from state-run companies.

China’s state-sponsored aerospace manufacturer, Commercial Aircraft Corporation of China, completed the first public flight test of its passenger airliner in 2017 and is fast becoming a rival to both Boeing and Airbus in global aircraft construction. China’s airlines are also state-run, and Beijing can order them to buy domestically built planes, squeezing market share for Boeing and Airbus.

The United States and the EU would work together, Tai said, “to challenge and counter China’s nonmarket practices in this sector in specific ways that reflect our standards for fair competition.”

In a post-summit news conference, Tai said: “For almost 20 years, we have been at each other’s throats, fighting each other in terms of competition between our industries. While we have been engaged in this fight, others are taking the opportunity to launch their own industries, and we have been too busy fighting each other to pay attention.”

But she cautioned that the agreement set limits on the subsidies that the EU would be allowed to provide to Airbus, warning that the United States would reimpose billions of dollars in tariffs if subsidies by EU countries crossed a “red line.”

“These tariffs will remain suspended, so long as EU support for Airbus is consistent with the terms of this agreement,” Tai said. “Should EU support cross the red line, and U.S. producers are not able to compete fairly and on a level playing field, the United States retains the flexibility to reactivate the tariffs.”

It is a critical moment for both companies, which are struggling to overcome a slowdown caused by the pandemic. Most within the industry expect it to be years before airlines and plane manufacturers can fully shake off the effects of the downturn.

Tuesday’s announcement isn’t expected to have an immediate impact on the companies. Boeing and Airbus have already begun unwinding the subsidies they enjoyed — Airbus had said that it would increase repayments of low-cost loans it received from multiple EU countries, while Washington has repealed a state tax break for Boeing.

Still, the agreement removes a persistent concern for both companies as they seek to lift sales around the world.

Biden’s approach to Europe is both political and practical: The EU, given its enormous economic power as a market and as a trading bloc, has more impact on American life than any other multilateral institution. Biden wants more support from the Europeans on restraining the damaging effects of the rise of China.

Major countries such as Germany, France and Italy are reluctant to join Washington in an adversarial relationship with China, but attitudes are hardening because of Chinese human-rights abuses at home, trade practices and widespread industrial espionage. The EU, for instance, has agreed on a voluntary investment screening program similar in concept to an American panel known as the Committee on Foreign Investment in the United States.

There remain other significant disputes between the United States and the EU, most prominently another lingering case over Trump-era tariffs on steel and aluminum. In 2018, Trump used special “national security” provisions to impose the tariffs, which set off a larger trade war.

The EU retaliated by targeting about $3.4 billion of American imports with tariffs on a range of big-name products, including Harley-Davidson motorcycles, Levi Strauss jeans and bourbon whiskey.

Brussels suspended its retaliatory tariffs for six months in May, hoping to negotiate a longer-term solution on the problem of steel overcapacity worldwide.

Dombrovskis has urged Biden to “walk the talk” of comity and drop those tariffs.