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Investing.com — Airbus (OTC:EADSY) stock soared on Monday to its highest level in more than two months, profiting from hopes of an end to the trade wars that characterized Donald Trump’s presidency.
By 5:45 AM ET (1045 GMT), the European aerospace giant was up 4.0%, the best-performing stock in the Euro Stoxx 50 blue chip index, as investors bet that the new administration will seek an end to the decade-long wrangle between the EU and U.S. over subsidies for their domestic champions in the sector.
The moves were part of a broad risk-on rally in the wake of a weekend that saw Joe Biden clinch the U.S. presidency, with investors choosing to dismiss Trump’s chances of overturning the result with lawsuits and recounts.
Analysts argue that a Biden administration is likely to drop Trump’s efforts to reduce the U.S. trade deficit by the imposition of import tariffs, and is also likely to return to multilateral approaches in foreign policy in general, building coalitions to pursue what will be an unchanged primary goal of restricting Chinese economic and geopolitical influence.
That means rebuilding bridges with the EU, and the first step to rebuilding bridges is the dropping of import tariffs, notably on steel and aluminum.
So the argument goes, at least. However, trade disputes have their own internal dynamics and the path to such a goal is unlikely to be a straight one. The first thing EU trade ministers did as they convened via Webex on Monday was to confirm the imposition of import tariffs on Boeing Co (NYSE:BA). This had been in the making since the World Trade Organization deemed earlier this year that the U.S., too, had been guilty of subsidizing its national champion. That followed a WTO ruling last year against illegal EU launch aid for Airbus, since when Trump has imposed tariffs on a broad range of European goods (not just Airbus’s).
With the EU’s action, that particular dispute is now evened up. But EU Commission Vice-President Valdis Dombrovskis was quick to point out that this makes the choreography of a mutual de-escalation easier:
“Of course we remain open for a negotiated solution,” Dombrovskis said in a briefing ahead of the meeting. “Our proposal of course remains on the table, that both sides withdraw their tariffs and that we move ahead with a negotiated settlement.”
So far, so peaceful. It remains to be seen, however, whether the traditional lobbying power of Airbus and Boeing will allow that de-escalation. Both companies have suffered grievously from the pandemic, slashing both current production and their long-term outlooks amid doubts that international air travel will ever regain its previous momentum. Neither will want their biggest rival to be let off the hook, and both can convincingly plead that thousands of high-quality manufacturing jobs are at stake: The previous Democratic administration, in which Biden served as vice-president, was more than sympathetic to Boeing’s arguments then.
The risk for Airbus and Boeing investors is that they get carried away by rhetoric of healing and peacemaking. This one will be harder to de-escalate than, for example, steel and aluminum imports or even those of strategically vital luxury cars. But with Airbus stock still down over 40% from its January level, and Boeing stock even more so, at least the risks look more evenly balanced from here on.
