Economics Investing

Trump’s Threat Of New EU Tariffs Is A Surprisingly Orderly Move

Having indulged for over a year in disorderly trade wars, the Trump administration created a stir this week when it took steps to pursue an orderly trade war. President Trump served warning (in a Tweet, of course) that those serving Roquefort or Gouda may soon be subject to new tariffs. With all the nuance that 280 characters allow, he threatened tariffs on $11 billion of European Union products.

Yet nuance is important. It is the difference between assessing a fine after a court judgment and simply snatching cash from your neighbor’s wallet.

The President’s Tweet actually heralded an orthodox procedural step in the very-long-running trade dispute between the United States and Europe on behalf of their respective champions, Boeing and Airbus. Each side has accused the other of subsidizing the production of large passenger aircraft. Those accusations have crisscrossed the Atlantic for decades.

The current version of this dispute provides context for a review of how international trade disputes are supposed to work under the World Trade Organization (WTO).

The United States claimed, in 2004, that the European Union was providing money to Airbus in a way that was not permitted by the existing WTO agreement on subsidies. There is not much doubt that the EU supported Airbus, but since not all subsidies are banned by WTO agreement, that left some thorny legal questions about whether these subsidies were legit.

The WTO put together a panel of third-country trade experts to decide on the complaint, consisting of an Uruguayan chairman, a New Zealander, and a South African.  They issued a report in 2010 that was more than 1,000 pages long. They found that, at least to some extent, the United States had a legitimate complaint.

Under WTO procedures, the EU could appeal this decision to the Appellate Body, and they did. In 2011, the Appellate Body also found that there were problems with EU Airbus subsidies.

In theory, that left the EU with three possible responses: it could get rid of the offending measures; it could pay off the United States; or it could accept U.S. retaliation.

It chose to get rid of the offending measures. But that only launched a new round of disputes over whether the EU changes really fixed things at all. If the WTO ultimately finds that the EU has not been compliant, the United States will be authorized to apply tariffs. The U.S. Trade Representative’s office just put out a proposed list of items on which it might slap tariffs, requesting public comment. This was the occasion for President Trump’s tweet.

What is the point of such an intricate and drawn-out procedure? Above all, it is meant to keep trade disputes from getting out of hand. If the United States ultimately wins the case and applies tariff, the EU will not be allowed to retaliate (though it has filed its own separate complaint against the United States). Thus, the WTO dispute system is meant to keep trade fights from spiraling out of control; and it has been remarkably effective in this mission.

Contrast this fight with the U.S.-China dispute over intellectual property, that occurred entirely outside the WTO system. President Trump imposed tariffs on $50 billion of Chinese goods once a U.S. investigation determined that China had harmed the United States. That dispute moved much faster than the Airbus-Boeing case, but also spiraled quickly; China retaliated against billions of dollars of U.S. exports and U.S. tariffs on $250 billion of Chinese exports. The China fight calls into the question the status of WTO commitments, if a major country like the United States can circumvent the WTO and act unilaterally.

While the announcement of the EU-Airbus retaliation list might mark a welcome return to a more orderly approach to trade disputes, it also represents a failure of negotiation. A dispute as political and intricate as the one involving Boeing and Airbus should have been settled between the governments instead of being thrown to WTO adjudication.

This has been an unfortunate trend that threatens the WTO system. There has been no major new agreement under the global trade regime since the WTO was created in the mid-1990s. Meanwhile, one politically-charged dispute after another has been sent to WTO panels, including topics such as whether China is a non-market economy and whether the United States has the right to apply tariffs when it claims its national security is at stake. This has created an unhealthy imbalance between negotiation and litigation.

While this dangerous trend significantly predates President Trump, his administration has escalated the problem by its threefold approach of indulging in controversial disorderly protection, eschewing multilateral negotiations that might strengthen the WTO, and then actively blocking the appointment of WTO judges.

In this light, President Trump’s triumphant Tweet about hitting cheese and other EU imports with new tariffs is actually a bittersweet nod to the requirements of an orderly system that his administration has otherwise seem bent on destroying.

This article originally appered on Forbes