Why the European-US trade war matters to China

Aviation is key battleground in international squabble

A tit-for-tat dispute between Europe and the US over alleged unfair subsidies to their respective planemakers - Airbus and Boeing - has been simmering for a decade and a half.

But after the latest World Trade Organization, or WTO, ruling in favor of Airbus, the Trump administration in Washington has threatened a full-on trade war with the Europeans, involving a potential $11 billion in tariffs.

The Europeans have responded in kind as well as warning the US that the dispute can only favor US  President Donald Trump's current trade obsession - China.

Since its foundation in 1970, Airbus has grown to rival Boeing, and the two companies now dominate the international market for passenger planes.

Their growing commercial rivalry erupted into open conflict in 2004 when the US went to the WTO to allege that the Europeans had violated international trade by subsidizing Airbus.

The conflict that has since dragged on with claim and counter-claim has been given added bite by Trump's "America First"doctrine which casts his country's trade partners as potential antagonists and destroyers of American jobs.

Even before his election, China was first in Trump's sights, although indications are that talks between Beijing and Washington on resolving their differences on trade may be approaching a conclusion.

However, the prospect of a positive outcome to those negotiations did not deter the French from prodding the US with a warning that a US-Europe trade war over Boeing and Airbus would ultimately favor the Chinese.

Ahead of what were described as "tense" exchanges in Washington last week between French and US trade officials, French finance minister Bruno Le Maire warned the Americans:"Starting a trade war between the US and Europe serves only one country: China."

Le Maire cited potential competition from the Commercial Aircraft Corporation of China. Comac, as it is known, is a key player in Beijing's "Made in China 2025" industrial plan in which domestic planemakers are due to fill 10 percent of the Chinese market within the decade and to go on to compete with the Western giants.

Comac has been testing its C919, a twin-engine plane that compares with the latest generations of Airbus 320 and Boeing737, and has already received orders for the aircraft from home and abroad.

Industry analysts have speculated that Comac may benefit from the current troubles of Boeing, which was forced to ground its 737 MAX aircraft worldwide after a second fatal crash in five months.

Although France's Le Maire raised the spectre of China benefitting from a US-Europe trade war, another Frenchman played down fears of Chinese competition. Bernard Charles, the head of Dassault Systemes, said it would be more than a decade before China would be able to compete on a par with Boeing and Airbus.

But whatever the implications for China of the Airbus-Boeing spat are, it is very much a matter for the Europeans and the Americans to resolve.

The case has become a symbol of a deterioration in trade relations between the US and the European Union after the US threatened to impose tariffs on steel and to sanction European companies doing business with Iran.

The WTO last year ruled that the US had the right to impose billions of dollars in punitive tariffs on EU imports after it confirmed a finding that the Europeans had illegally subsidized two Airbus models, a practice Washington said had been going on for years.

This March, however, the WTO upheld EU claims that Boeing received billions of dollars in illegal US subsidies and tax breaks.

Washington responded by highlighting last year's ruling in Boeing's favor in which the WTO is yet to make a final determination on the level of tariffs the US can impose.

"The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put tariffs on $11 Billion of EU products!"Trump posted on Twitter."The EU has taken advantage of the US on trade for many years. It will soon stop!"

The posting was more than Trumpian bluster. It reflected the views of administration trade officials, including US Trade Representative Robert Lighthizer, who said:"This case has been in litigation for 14 years, and the time has come for action."

The EU Commission hit back within days with a threat to seek punitive tariffs on $12 billion worth of US exports for Washington's failure to halt tax breaks to Boeing.

If the issue were not so serious, it might almost be comical. In the face of US threats to bring Europe to its knees by slapping tariffs on its cheese, olives and wine, the EU is threatening US exports of goods that include cod, mangoes, beeswax and roulette tables.

The two sides have previously had periodic uneasy truces over the Airbus-Boeing issue. With the WTO yet to make its final ruling on penalties, there is still an opportunity for the two sides to talk down the tension.

However, some European analysts have suggested that if the US can reach an equitable deal with China to resolve trade tensions, that might increase his appetite to go all out for the Europeans.