EU Prioritizes Airbus Protection in US Trade Talks

In the ongoing trade negotiations between the European Union and the United States, the EU is prioritizing the protection of Airbus, a leading player in Europe's aerospace manufacturing industry. The focus is on safeguarding key industries from significant tariff impacts, with Airbus being a top priority. The automotive sector's protection measures are likely to be based on a "offset mechanism," which would only benefit European car manufacturers with operations in the U.S. Porsche and Ferrari, which do not operate factories in the U.S. and import all their cars from Europe, would not benefit from this mechanism.

The EU is in urgent negotiations with the U.S. to reach a trade agreement that would exempt commercial aircraft from certain tariffs, benefiting Airbus. The discussions also include a "offset mechanism" that would allow European car companies operating in the U.S. to export a certain number of cars tariff-free. This mechanism would benefit companies like BMW, Mercedes-Benz, and Volkswagen, which have factories in the U.S. However, Porsche and Ferrari, which do not have U.S. operations, would not receive these benefits.

The EU's industrial policy chief has emphasized the importance of protecting Airbus from additional tariffs, stating that the company should not be subjected to unfair competition from Boeing. The chief noted that without rebalancing, leading industries could lose protection, making the exemption for Airbus economically beneficial. Airbus's global production network, with facilities in France, Germany, China, the U.S., and Canada, provides it with a competitive advantage. This network allows Airbus to sell locally manufactured aircraft to U.S. and Chinese customers, a flexibility that Boeing lacks as it only produces in the U.S.

The U.S. has shown some flexibility in the negotiations. During the Paris Air Show, the U.S. Transportation Secretary expressed support for returning to the 1979 trade agreement terms, which exempted aircraft and components from cross-border trade tariffs. The secretary acknowledged that this historic agreement has created a trade surplus for the U.S.

The automotive tariffs have increased costs and complexity for European manufacturers, who rely on the profitable U.S. market for selling large and high-priced SUVs. The situation is particularly challenging for German companies, which are facing declining market share in China and need to protect their position in the U.S. market. The EU is hoping to reach a fair trade agreement with the U.S. by August 1, or else face retaliatory measures from the U.S. The current U.S. tariffs cover 70% of EU exports to the U.S., valued at approximately 3800 billion euros.