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Airbus CEO Indicts Wrong Global Trade Villain

Airbus CEO Indicts Wrong Global Trade Villain

July 2, 2024

In a recent interview with the Frankfurter Allgemeine Zeitung, Airbus CEO Guillaume Faury assailed the United States, not China, as the lead perpetrator of heightening global trade tensions. As Faury commented, “Trade wars are in full swing. And I want to remind you that in recent years, it was not the Chinese who imposed tariffs on European aircraft, but the Americans.” But laying the blame at America’s feet ignores that China has in fact become the greatest underminer of global trade policies and norms in recent years. Instead of pointing fingers at one another (as China wants) the European Union (EU) and the United States—and policymakers, CEOs, and citizens therein—need to stand together against Chinese economic predation and stand for a rules-based global trade system.

Faury's complaint stemmed from the Trump administration having imposed a 10 percent tariff on European commercial aircraft in 2019, an action Faury suggests made America a lead instigator of global trade tensions. But even that tariff—which the Trump administration withdrew in 2021—was small potatoes compared to the tens of billions in subsidies Airbus has received across recent decades from European governments to propel the continent’s aviation industry.

Disputes about EU subsidies, or “launch aid,” for Airbus wended their way through World Trade Organization (WTO) halls from 2004 to 2018, with these inquires consistently finding that the EU’s launch subsidies violated WTO rules. For instance, in May 2011, a WTO appellate body confirmed that the EU and four of its member states (Germany, France, Spain, and the United Kingdom) had extended more than $18 billion in WTO-inconsistent subsidized financing to Airbus, costing Boeing the sale of more than 300 aircraft, significantly eroding its global market share. Indeed, Airbus has benefitted from European launch aid for many of its aircraft-development programs, including the Airbus A380, A350 WXB, and A321.

Ultimately, a WTO compliance panel ruled in 2018 that the United States could impose annual tariffs of up to $7.5 billion as a countermeasure to Europe’s launch aid (which by then had reached $22 billion), which significantly harmed the U.S. aerospace industry by inducing significant lost sales of Boeing civil aircraft. As one commentator concluded, “The WTO found that every jetliner Airbus brought to market after its 1970 inception had been illegally subsidized, and that in the absence of such subsidies the company might not exist at all.”

Throughout the saga, Europe countered at the WTO that U.S. (including U.S. state) subsidies to Boeing were comparable to EU launch aid for Airbus. But the differences were orders of magnitude apart. In its WTO case against the United States, Airbus challenged over 24 different federal and state programs: The WTO flatly rejected 23 of the EU’s challenges. The WTO did rule in one specific case that a Washington state business and occupancy (B&O) tax subsidy ran afoul of WTO rules, potentially advantaging Boeing to the tune of $325 million (a small fraction of the $22 billion in launch aid Airbus has enjoyed). In March 2020, Washington state repealed that business and occupancy tax in question, bringing the United States into complete compliance with WTO rulings on the matter.

Furthermore, it’s actually Airbus that really can’t get off the public subsidy teat. As recently as December 2023, Faury observed that Airbus may need financial support from European governments to develop a successor to its A320 jetliner and a smaller, hydrogen-powered commercial transport.

Moreover, the real threat to Airbus is not America’s Boeing; it’s China’s state-owned national champion: COMAC (China Commercial Aircraft Corporation of China, Ltd.). Indeed, COMAC seeks to replace Boeing and Airbus as the go-to supplier of all single-aisle plane purchases in China and most of the emerging markets throughout the world. China is on track to achieve that because it has showered the equivalent of over $75 billion in government subsidies on the company, and because the Chinese government forces domestic airline companies to purchase COMAC planes. COMAC doesn’t have to worry about capital availability or even making a profit—it has in fact accumulated $10 billion in losses—thanks to the Chinese government’s largesse in supporting it. And there should be no doubt that until COMAC succeeds in gaining significant global market share, it will continue to run big losses and be bailed out by the Chinese government. All at the expense of Boeing and Airbus.

Thus, as the COMAC case illustrates, it’s fundamentally China that rejects the spirit, norms, and rules of the global trade system; not the United States, as the Information Technology and Innovation Foundation (ITIF) has documented across numerous reports, including Stopping China’s Mercantilism: A Doctrine of Constructive, Alliance-Backed Confrontation and False Promises II: The Continuing Gap Between China’s WTO Commitments and Its Practices, the latter which comprehensively documented how China has consistently failed to meet its WTO obligations to trade partners.

As these reports argue, China fundamentally rejects the foundational theory on which neoclassical market economics—and thus the entire edifice of the WTO and global economy—rests: that of comparative advantage. This is the theory that all countries have some industries where they enjoy an advantage in production relative to others and should specialize in the production and export of those products or services—and subsequently use those gains to trade for products and services for which they have less comparative advantage. China increasingly rejects this view and seeks absolute advantage across virtually all advanced-technology industries, which is why China seeks to lead the world in advanced-tech industries as disparate as aerospace, biotech, high-speed rail, semiconductors, and solar panels.

So if Faury really wishes to target the true culprit disrupting the global economy, he should look no further than to what happened on June 12, 2024, when the European Commission confirmed it would impose duties of up to 38.1 percent on imported Chinese electric vehicles (EVs) starting July 1, 2024. (For its part the United States recently imposed tariffs of up to 100 percent on Chinese EVs.) As a forthcoming ITIF report will document, America and European policymakers have had to resort to such extreme measures because Chinese mercantilist practices, including rampant IP theft and over $230 billion in industrial subsidies over the past decade, have turbocharged Chinese EV and battery makers and allowed them to sell products in foreign markets well below production costs. This in part explains why Chinese-made EVs already account for 25 percent of the European market. As ITIF has written, China’s model of massive industrial subsidization allows Chinese firms to compete on a non-market basis and has produced significant overcapacity in a range of high-tech industries from solar panels to ships, steel, and semiconductors. This represents the real threat to the global innovation economy.

And while, to be sure, Trump administration tariffs on allied countries in sectors such as aluminum and steel were unnecessary and counterproductive, these were one-offs and not hallmarks of the sort of predatory innovation mercantilism that China consistently defines Chinese trade practices. Instead of casting aspersions at the United States, Faury should focus on the real villain: China.

Ultimately, the EU and United States should collaborate much more to push back against Chinese economic predation, from aligning foreign direct investment and export control regimes to bringing cases at the WTO when Chinese entities steal American or European firms’ IP or dump their products in our markets. Only if the EU and United States fully commit to the cause can the vision of private enterprise-led, market-based, rules-governed trade system in accordance with the fundamental WTO principles of transparency, non-discrimination, and reciprocity be rescued.

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