If you’re a fan of European cheeses, I’m sorry to report the price outlook is not Gouda.
The U.S. and the European Union have a long-running trade dispute over airplane subsidies. Each side alleges that the other is subsidizing its major commercial-aircraft manufacturer (Boeing and Airbus, respectively) in violation of World Trade Organization rules. The WTO says both sides are right: Boeing and Airbus both receive improper subsidies. Soon, the WTO will say how much in retaliatory tariffs each side may impose to punish the other for these violations. And in preparation for that decision, the U.S. has prepared a list of $25 billion worth of European exports we might subject to 100 percent tariffs.
The list reads like an order sheet from Dean & DeLuca.
Tariffs may be applied to cheeses including Gouda, Stilton, Roquefort, and Parmigiano-Regianno. Olive oil. Olives. Dried cherries. Apricot jam, peach jam, currant jelly, pear juice. Ham, including Proscuitto di Parma, Jamón Ibérico, Jambon de Bayonne and any of the other delicious European hams. Wine. Whiskey. Brandy (e.g., Cognac). If you might buy it to throw a fabulous cocktail party, it may soon be subject to a prohibitive tariff.
Meanwhile, the EU has released its own list of goods it might tariff because of our subsidies to Boeing — it includes live lobsters, orange juice, and rum.
Donald Trump, who doesn’t drink, says you shouldn’t worry about wine tariffs because the best wines are American anyway. But while high tariffs that upset coastal snobs would seem to combine two of Trump’s passions, his strategy of threatening these tariffs is actually one of the more ordinary parts of his trade policy. Long before Trump was president, the U.S. and Europe have exchanged punitive tariffs on luxury and specialty goods as tools to push for resolutions to valid trade grievances.
“Even mature economies like the United States and Europe have these kinds of trade disputes all the time,” says Tony Fratto, who was a spokesman on economic and trade issues in the George W. Bush administration.
For example, there was the Banana War. In 1993, the EU implemented rules favoring banana imports from former French and British colonial possessions, which harmed the interests of American firms (Dole and especially Chiquita) that grew bananas in Latin America. So we complained to the WTO, the WTO said we were right to be upset, and with the WTO’s blessing we imposed a variety of retaliatory tariffs on items like cheese and handbags. At one point, Tony Blair had to prevail on Bill Clinton not to tariff cashmere sweaters from Britain.
The tariffs worked, in that the Europeans agreed to a resolution on the banana trade issue in 2001, in exchange for our backing off on the tariffs. But it took until 2012 for everyone to agree Europe was actually in compliance, meaning the Banana War was actually slightly longer than the war in Afghanistan has been to date.
Roquefort cheese has been a particular punching bag in these pre-Trump trade wars. After Roquefort had gotten whacked in the Banana War, George W. Bush imposed a 300 percent tariff on the French blue cheese as part of a campaign to pressure Europe to accept imports of hormone-treated American beef, as one of his last acts in office. Barack Obama lifted the tariff a few months later, after the Europeans agreed to increase their imports of non-hormone-treated beef, but hormones in beef remain a point of trade contention between the U.S. and the EU today.
There are a couple of aspects of this style of trade war that cut against President Trump’s usual philosophy of tariffs.
One is the reliance on the WTO. Trump likes to complain about the unfairness of the agreement-based international trading system. In many cases, as with his tariffs on steel and aluminum, he’s raised tariffs without the WTO’s blessing and without a valid grievance against our trading partners. But in this case, the WTO is Trump’s friend, giving him an authorized channel to use tariffs to fight with other countries.
Another is the focus on specialty and luxury goods. Why focus on these kinds of goods? Traditionally, it’s because you don’t want tariffs that will raise the cost of basic consumer necessities, and you don’t want tariffs that will hurt the economy by making business inputs more expensive. So you focus on luxuries that people can skip or substitute if they become expensive. Implicit in this analysis is an admission that other countries don’t pay American tariffs; Americans pay American tariffs.
The other reason to focus on specialty products is that focus allows you to apply geographically concentrated political pressure. Ideally, European winemakers and cheesemakers will call their members of parliament and urge them to make a deal with America about aircraft subsidies so they can resume exports of wine and cheese. Fratto noted it is especially useful to pressure regions of Europe that have little to gain from the protectionist policies underlying the dispute; during the Banana War, tariffs on Italian products were especially useful because the Italians, with no banana-producing former colonies, lacked any attachment to banana protectionism.
Ideally, while these tariffs put the screws to producers abroad, they should have relatively little impact on American consumers. But I suspect 100 percent tariffs on some of the goods the Trump administration has threatened to target would draw a lot more notice than another round of tariffs on Roquefort.
For example, last month a bipartisan group of 19 members of Congress wrote a letter to US Trade Representative Robert Lighthizer urging that Trump not apply these tariffs to olive oil. They noted that 70 percent of olive-oil imports come from Europe and there literally isn’t enough non-EU olive oil available for export in the world to satisfy American demand. That means the tariffs would force consumers to choose between olive oil that has become much more expensive, or a different kind of oil that might not be as good.
“Large price increases can push many consumers and food manufacturers to choose food oils that lack the unique health qualities of olive oil,” the members of Congress warned.
I also think a tariff on Parmigiano-Reggiano would likely draw much more notice and consternation than cheese tariffs of the past. Lou Di Palo, the owner of a cheese shop in Little Italy, told CNN he’d have to charge $30 to $40 a pound for it if the tariffs go into effect. And I will tell you: If I can think of one cheese whose pricing could move votes, it’s Parmigiano-Reggiano. There is no good culinary substitute for Parmigiano-Reggiano, certainly not domestic Parmesan.
Not all the proposed tariffs will go into effect. The WTO will only allow tariffs in an amount it determines is appropriate to offset the effects of the Airbus subsidies, and that figure should be considerably less than $25 billion. Trump and his team will then get to pick and choose from their $25 billion list, and they’ll be able to spare some goods deemed particularly sensitive, perhaps including olive oil and (I sincerely hope) Parmigiano-Reggiano.
But for those tariffs that do go into effect, American consumers will face a choice: Find a substitute product not imported from the EU, or pay a steep price to continue enjoying the import. And call your lawmakers and urge them to figure out the airplane thing so we can all go back to our wine and ham and cheese.