On July 27, EU President von der Leyen and US President Trump negotiated a trade
deal that, among other things, set the US tariff on EU exports at 15%. While the agreement
remains subject to change and isn’t legally binding, experts almost unanimously view it as a
capitulation for the EU; French Prime Minister Bayrou called it “resigning to submission,”
and Hungarian Prime Minister Orbán commented that “Donald Trump ate von der Leyen for
breakfast.” Interestingly, one of the few tariff exemptions covers aerospace – aircraft and
their parts – and this was heavily lobbied for by Airbus and Boeing, whose rivalry once
sparked one of the largest corporate trade disputes. This raises the question: how and why
was this deal struck, and what can other industries learn from it?
A quick overview – the aerospace industry has one of the most famous duopolies:
Airbus, a joint venture between France, Germany and Spain and Boeing – a historic
American conglomerate. And together they control more than 95% of the commercial aircraft
market – with a roughly 50 to 45 split. While currently Boeing, relative to Airbus, is facing
much more difficulties, given that they are losing money and facing major labour strikes, the
market cap and revenue of Boeing is still larger then Airbus, largely propped up by defence
contracts. Nevertheless, they fight for the same market and usually are bitter rivals.
In 1992, as Airbus started to become a larger player, the US and the EU signed a
bilateral agreement that capped the total subsidies each government could provide to its
businesses and fixed a zero-tariff regime. This continued until 2004, when the US and the EU
(prompted by the companies) on the exact same date launched complaints with the World
Trade Organization. This launched an epic, decades-long corporate battle, with billions spent
in administrative and legal costs.
The first punch was to the EU – WTO ruled that the EU had actually implemented
illegal subsidies, and was forced to restructure financing for some projects. But while this
was under appeal, the WTO ruled that tax breaks for Boeing were also illegal. Altogether,
this cost billions for both companies in lost subsidies. But they were not done. In 2019,
finally, after many appeals, the WTO found that the EU had violated even more provisions of
the agreement and allowed the US to levy a $7.5 billion tariff. The only problem – they did
not want to impose a very high tariff on the EU because many American airlines use planes
and parts from EU companies, so they came up with a clever solution: they put a 25 % tariff
on French wine, Italian cheeses, and Scottish whiskey. This “holding of hostages” escalated
when the EU was finally allowed to levy a $4.1 billion tariff and held bourbon, peanut butter,
motorcycles, and many other items hostage. This madness finally ended in 2021, when both
parties agreed to “release the hostages” and temporarily suspend most of the tariffs. This was
again mainly due to the fact that US buy so many aircraft parts and related equipment from
the Europeans, that it simply did not make economic sense to put up these tariffs, as it also
hurts them. The same justification was made when in 2025 both companies lobbied to keep
and fix the zero tariff regime.
While the story is interesting, there is a deeper lesson beyond simply “free trade is
good.” In the past, a company like Boeing would have celebrated seeing its main rival
punished without any real consequences. However, this long dispute and the resulting
agreement reveal that, over time, American firms also bear the cost. Obviously, some sectors, such as the US car industry, have asked for more tariffs, but because supply chains are
closely intertwined and production processes so complex, the dangers of tariffs often
outweigh their benefits – especially in advanced manufacturing fields like semiconductors,
even when there is no immediate retaliation. As negotiations continue, we may see
companies forming cross-border partnerships and lobbying their governments to establish a
permanent zero tariff framework. This marks a shift from the old protectionist mindset and
must be taken into account for future trade policy by both the EU and the US.
– Rūdis Freipičs
