Bohanon & Curott: Reversing European trade policies is good policy

The Biden administration has taken a first step toward reversing the aggressive trade policies of the previous administration. On March 4, the U.S. and U.K. agreed to a four-month suspension of tariffs levied on a variety of foods and spirits, including Scotch whiskys and English cheeses. One day later, the U.S. and EU agreed to a similar suspension of tariffs on billions of dollars’ worth of each other’s aircraft, wines, liquors, foods and various other products.

Freeing up and encouraging trade is crucial for spurring the economy, which is still recovering from the worldwide pandemic. These new trade agreements are a good start. The U.K. and EU tariffs have been harming American businesses by subjecting sales in Europe to a 25% tax. Lifting these tariffs will increase sales and profits for struggling American businesses, especially in the alcohol industry. Meanwhile, lifting the U.S. tariffs will bless American purveyors and consumers of fine European spirits and cheeses with a marked reduction in prices.

The history of these tariffs, which arose in a long-running dispute over European airplane subsidies, illustrates the economic lunacy of trade war shenanigans. The U.S. tariffs on European cheese and spirits were put in place as retaliation against European governments for subsidizing the European airplane manufacturer Airbus.

To begin with, the very idea that foreign subsidies are a form of unfair competition that harms Americans and justifies tariffs doesn’t make sense. Sure, the Airbus subsidies harm American airplane manufacturers like Boeing by making it harder for them to compete. But this harm is more than offset by the benefits to American purchasers of airplanes. If European taxpayers want to pay to sell airplanes to Americans at below cost, there’s no reason for Americans to complain. Regardless, imposing retaliatory tariffs that harm Americans as much as Europeans merely cuts off the nose to spite the face. Meanwhile, the tariffs didn’t stop Europeans from subsidizing Airbus, but they did prompt retaliatory tariffs on American products.

The suspension of these tariffs offers hope that future agreements can be reached and freer trade reestablished between Americans and their European allies. However, it remains uncertain whether actions will be taken to undo the more economically harmful tariffs imposed by Trump on Chinese goods, and the retaliatory tariffs they prompted on American goods. Of course, geopolitical struggles between the U.S. and China make these negotiations much more problematic than negotiations with Europe—but trade agreements, like trade wars, are often contagious.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.