News Center

US President Donald Trump has targeted the latest tariffs at some of Europe's top luxury brands.

On Friday, a World Trade Organization (WTO) panel said the United States could legally impose tariffs on a range of European exports in retaliation for Europe's illegal subsidies to Airbus.

A WTO panel is expected to publicly release a report by the end of this month allowing the United States to impose new tariffs on European exports worth $5 billion-$7 billion a year, EU sources said. But Trump threatened, in fact, $11 billion.

Bloomberg believes that after the WTO gives the "green light", the United States may respond soon.

　　The "Subsidy War"

In fact, the reason why the United States imposed tariffs on the European Union is very "old-fashioned". It can be traced back to the "aircraft subsidy war" between the United States and Europe ".

In 1992, the United States and Europe signed a bilateral aircraft subsidy agreement. The agreement allows the European Union to subsidize one-third of the research and development expenditure of European Airbus's new civil aircraft, while the US government can provide research and development support for its own Boeing company.

Later, due to the rapid growth of Airbus shipments and even surpassing Boeing, the United States touched the "nerves" of the United States. In October 2004, the United States announced its withdrawal from the bilateral aircraft subsidy agreement and filed a lawsuit with the WTO, claiming that the British, French, German, and Spanish governments were Airbus A380 and other important aircraft provided export subsidies prohibited by the WTO and countervailing measures agreements.

Within a year after the WTO ruled in 2011 that the EU illegally subsidized Airbus, it ruled that billions of dollars in subsidies received by Boeing were also illegal subsidies and asked the United States to stop the measure. The EU has also filed a complaint with the WTO, accusing the US of not complying with the order.

On March 28 this year, the WTO made a final ruling on the 15-year "subsidy war" between Airbus and Boeing, and found that it was illegal for the United States to provide subsidies to Boeing in the form of "tax relief" in Washington State.

According to the current WTO expert panel, the United States can legally impose tariffs on a series of European exports on the grounds of retaliating against Europe's illegal subsidies to Airbus.

　　LVMH "doomed"

At present, the scale of the additional tariffs that the United States intends to impose on European exports to the United States has been expanded to $25 billion, and tariffs on some goods may be as high as 100 percent. In addition to the most expensive goods on the list-aircraft and parts exported from Europe, the most "conspicuous" are some of the top European luxury brands.

The United States has always been one of the preferred markets for European luxury companies such as LVMH. In 2018, U.S. shoppers bought 11.2 billion million euros ($12.4 billion) worth of LVMH products, accounting for a quarter of its global sales.

Embarrassingly, in July this year, LVMH Chief Financial Officer Jean-Jacques Guiony also said in a conference call that "the company is very sensitive to tariffs and trade barriers", and now Trump's "tariff stick" has been "under the city.

Bloomberg believes that the US tariffs will have an impact on LVMH's two product lines: one is LVMH's Dom Perignon Champagne King, Moet & Chandon and Hennessy and other wines and spirits; The other is leather products such as Donna Karan, Givenchy, Kenzo and Louis Vuitton.

But by contrast, life will be more difficult for European beverage producers. Since April this year, Trump has been threatening to impose new tariffs on EU wine, liquor and other alcoholic beverages.

The reason is that, in addition to the "aircraft subsidy war", the Trump administration has been considering imposing a "digital tax" on US technology giants such as Amazon, Facebook and Google's parent company Alphabet, in response to the imposition of tariffs on French wine and other goods.

Most alcohol producers in the EU are uneasy about the increased uncertainty. Especially for Scotch whisky producers who have been affected by "no agreement to leave Europe", the arrival of the new tariff is undoubtedly "worse". According to the International Trade Center (ITC) in Geneva, the European Union exported $2.1 billion worth of Irish and Scotch whisky to the United States in 2018.

But Luca Marotta, chief financial officer of Remy Cointreau SA, a famous French brewer, is tougher. He said the new tariffs would increase costs for businesses, which would certainly be passed on to American consumers. He also emphasized in a conference call on July 17, "I want to reiterate that if tariffs are really imposed, we will immediately increase prices".

　　Future negotiations will be more difficult.

However, it is not only the EU that has been injured.

Since Trump imposed tariffs on EU steel and aluminum in March 2018, the EU also retaliated with a 25% tariff on American whiskey and bourbon in July of the same year, and threatened to impose further penalties on $12 billion worth of whiskey and other U.S. exports.

In response, Lisa Hawkins, a spokeswoman for the American Distilled Spirits Association, had strongly opposed the Trump administration's inclusion of distilled products in the proposed "retaliation list. "U.S. companies, from farmers to suppliers to retailers, have already been negatively affected by the retaliatory tariffs, and imposing additional tariffs will only cause further harm".

Chris Swonger, chief executive of the association, said a few days ago, "based on the level of tariffs imposed by the United States on EU spirits and wine, we estimate that tariffs may also have a negative impact on American companies, leading to an increase in unemployment across the United States from 11200 to 78600."

So, is the trade friction between the EU and the United States really unresolved?

Bloomberg pointed out that the EU now has two ways to avoid this new tariff, either to end illegal subsidies to Airbus or to reach a settlement agreement with the United States.

The problem, however, is that while U.S. Trade Representative Lighthizer and current EU Trade Commissioner Cecilia Malmstrom are currently welcoming the idea of a negotiated settlement, there is actually no trace of negotiations that can really solve the problem.

Malmstrom will step down as EU Trade Commissioner on November 1 this year, while the successor Phil Hogan (Irish and current EU Executive Commissioner for Agricultural Affairs) is more stubborn and advocates a tougher attitude towards the United States and Europe, so future negotiations may be more difficult.

"We will do everything we can to make Mr. Trump see that what he is doing is wrong," Phil Hogan said in an interview with Irish radio and television (RTE) on September 10."

(Source: International Finance)