Back in October, the World Trade Organizations announced that the US could legally retaliate against the EU by slapping new tariffs on some $7.5 billion in European exports as punishment for the Europeans providing illegal government subsidies to Airbus. At the time, we warned that this was like throwing gasoline on the embers of the US-EU trade spat as the Trump administration auto tariffs still loomed large over the global economic landscape.
Since then, the US has imposed some of those tariffs. Now, Robert Lighthizer has a plan for the last $3.1 billion
In keeping with the ruling, the Office of the Trade Rep has finally come up with a list of European goods to be targeted by these tariffs. But Lighthizer & Co. are also planning to increase tariffs on other European goodsfrom aircraft and aircraft parts to dairy products like cheese and yogurt according to a notice published late Tuesday evening outlining the department’s actions, and opening a month-long comment period to solicit feedback before pushing ahead.
According to Bloomberg, if the US follows through with this plan, it could hammer European luxury brands and spirit makers at a time when those businesses are already feeling a serious pinch from the coronavirus outbreak, which has hurt consumption of liquor at restaurants and social gatherings (while many have been buying more booze to enjoy at home).
If the U.S. follows through with its plan, it could hammer European luxury brands like Givenchy and Hermes — which produce leather goods — and Remy Cointreau and Pernod Ricard, which make cognac and champagne. LVMH Moet Hennessy Louis Vuitton would be particularly vulnerable because it produces a wide array of these products.
Tariffs on British gin could increase U.S. prices at peak season for gin-and-tonics, potentially hurting British spirits companies like Diageo Plc, the London-based maker of Tanqueray; James Burrough, the maker of Beefeater gin; and William Grant & Sons, the maker of Hendricks gin.
German imported beer would also take a hit, potentially giving a boost to the oversaturated American craft beer market.
New U.S. duties might also dampen demand for German beer ahead of any Oktoberfest celebrations that aren’t already canceled because of the coronavirus.
The addtional import taxes would already add to the 25% tariff the U.S. imposed last year on imports of Scotch and Irish Whisky and liqueurs and cordials from Germany, Ireland, Italy, Spain, and UK.
The Distilled Spirits Council in the U.S. said it opposed any additional spirits tariffs, which would “escalate trade tensions across the Atlantic and further jeopardize American companies and hospitality jobs already under duress as a result of COVID-19,” according to a statement.
BBG explains that the strategy employed by the US Trade Rep is known as “carousel retaliation”, whereby the industries targeted by tariffs are occasionally shifted to spread the pain around, and inject additional pain due to the “uncertainty” of who will be targeted next.
In the meantime, Trump’s top trade official, Robert Lighthizer, has sought to increase pressure on the Europeans by deploying a particularly damaging tactic called “carousel retaliation,” whereby a country periodically shifts tariffs on different groups of goods.
Tuesday’s USTR notice is a reminder that the U.S.’s tariff targets may shift or be subject to higher levies — a strategy that spreads the sanctions pain across an array of industries, creating uncertainty for businesses and headaches for exporters and importers alike.
Earlier this year the U.S. deployed its carousel retaliation strategy to increase tariffs on exports of Airbus aircraft and parts from 10% to 15%. To date the U.S. has only deployed tariffs on goods worth about half of its permitted retaliation levels.
Lighthizer said his goal in increasing tariffs is to persuade the EU to agree to a settlement. But talks between the U.S. and the EU have floundered this year, and now the EU is preparing to retaliate with new tariffs against an array of politically sensitive U.S. industries.
Both sides also have the option of reaching a settlement, but the talks have reportedly become fairly contentious, prompting the Europeans to back out. This is why Lighthizer is opting for the extra-painful “carousel” approach: The US is ratcheting up the pressure on the Europeans to cave and strike a deal.
But with everything going on, they’ll likely only succeed in angering Brussels. As the world digs itself out from the coronavirus crisis, the US’s position is clear: It’s every nation for themselves. We’ll see how they – and the market – like it when the EU responds by slapping tariffs on some $11.2 billion in US goods.
With so much at stake, it’s hardly a surprise the market is off this morning.
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