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May 17, 2021

Tariffs situation, what has changed with Biden?


International trade is based on strict regulations. One of these is the payment of customs duties, which are taxes levied on the value of all products imported and exported by the country imposing them.

This rule applies worldwide, with the exception of the countries of the European Union. They have free trade. This means that every EU country does not have to pay any duties when importing or exporting products between member states.

However, they still have to pay duties to non-EU countries, as is the case, for example, between Italy and the USA. Since the new US President Biden took office, however, something has changed. There has been talk of a'peace of tariffs', so let's see what it is and how it has affected Italy.

Peace of Duties, what is it?

Joe Biden, the 46th President of the United States of America, found many scenarios in front of him as soon as he stepped into the White House. One of these was the resolution of a 17-year trade conflict: the Airbus-Boeing dispute.

The story

In short, in 2004, the European aircraft manufacturer Airbus became the world's leading manufacturer. However, historic American rival Boeing pointed the finger at the subsidies that the European consortium had received since the 1970s, reporting an illegal flow of money amounting to $22 billion. Europe responded by pointing its finger at American aid, which in any case amounted to $23 billion. In short, it was an eye for an eye and a tooth for a tooth.

In the end, however, the WTO (World Trade Organisation) ruled that both the EU and the US had received illegal aid. Airbus through the support of aircraft launch programmes, Boeing in the form of government contracts for tax breaks. The US has seen its market share plummet because of the illegal aid the EU has received. Thus, the WTO, in order to resolve the situation, has quantified the tariffs that the US can legitimately impose on the EU in order to recover.

In the end, a figure of 7.5 billion dollars was agreed. In the meantime, in Washington, where George W. Bush was still in attendance, the most disparate goods had already ended up in the sights of the lists and, among these, there were especially Italian agricultural and food products.

After this decision, Coldiretti (National Confederation of Italian Farmers) updated the count of the possible impact on our export and established that the biggest bill would be paid by producers of cold cuts and cheese.

The US duties affected Made in Italy agri-food exports by 25%, worth about half a billion euros. The products that ended up on the black list were: cheeses including Grana Padano and Pecorino, then shellfish, molluscs and even citrus fruits, juices and liqueurs.

The new agreement

As anticipated, Biden, on the trade front, found himself in this context. In fact, it was also Donald Trump 's presidency that made the situation worse. Indeed, he had locked the US-EU trade relationship in a tug-of-war, ignoring European demands for an understanding and preferring to ride his trade war. His rigidity had led to the imposition of duties worth $11.5 billion.

Fortunately, the arrival of Joe Biden settled these differences. Through a phone call with European Commission President Ursula von der Leyen, the two leaders finally sealed a trade peace between the US and the European Union by suspending all tariffs related to the Airbus-Boeing disputes over aircraft and non-aircraft products for an initial period of four months.

The reason for choosing to start with a suspension of only four months is that this period should serve as a 'test' before a final agreement is reached. Therefore, the intentions between the US and the EU are the best, as this act represents thebeginning of a new chapter in Atlantic harmony and respect for multilateralism. In fact, according to Coldiretti, this agreement will lead to a rush to fill warehouses with Made in Italy products. Now, let's see in more detail what the repercussions are for Italy after the peace of duties.

Peace of tariffs, what changes for Italy?

The 'only' four-month test bench is in fact a very good omen forItalian exports. In fact, due to the fact that a time limit has been imposed, the US will rush to stock up and import more products from Italy at the same time. Therefore, the 4-month moratorium on the additional 25% duties has really boosted orders for all those products illustrated above, which had been blacklisted. Now, thanks to the new agreement, they will be the first to go.

It doesn't end here. Ettore Prandini, president of Coldiretti, pointed out that there seem to be the conditions for a new historical record for Italian agri-food exports to the USA. Moreover, it should not be forgotten that in the field of Made in Italy food and drink, the USA is the first outlet market outside the EU.

In 2020, exports earned almost EUR 5 billion despite the Covid emergency, representing a 5% growth. Cheese, mentioned above, was the food product most affected by the consequences of the pandemic in 2020, reporting a 20% drop in exports. Now, however, thanks to the agreement with Biden, they will be the first to benefit from the tariff freeze.

In other words, before the agreement, duties affected Made in Italy agri-food exports worth about half a billion euros on products such as: cheeses, cured meats, shellfish, liqueurs, citrus fruits and juices. Thanks to the peace of tariffs, now the production and export of these goods will be able to resume and flourish with a considerable boost.