BRUSSELS — President Biden on Tuesday announced the end of a bitter, 17-year dispute with the European Union over aircraft subsidies for Boeing and Airbus, suspending the threat of billions of dollars in punitive tariffs on each other’s economies for five years and shifting their focus to China’s growing ambitions in the aircraft industry.

The breakthrough came as Mr. Biden met top European leaders in a U.S.-E.U. summit meeting. European officials said that two days of negotiations in Brussels between Katherine Tai, the U.S. trade representative, and Valdis Dombrovskis, the E.U. trade commissioner, had finally produced an agreement that member countries approved overnight.

“This really opens a new chapter in our relationship because we move from litigation to cooperation on aircraft — after 17 years of dispute,” said the European Commission president, Ursula von der Leyen.

Mr. Biden told her and Charles Michel, president of the European Council, that the world had changed and that the European Union and the United States working together was “the best answer to deal with these changes” that had brought “great anxiety” to citizens.

“It’s overwhelmingly in the interest of the U.S.A. to have a great relationship with NATO and the E.U.,” Mr. Biden said.

After the meeting, Mr. Biden flew to Geneva, where he will meet President Vladimir V. Putin of Russia on Wednesday. Mr. Biden will be able to present himself there as the leader of the Western democracies, having first been to summit meetings of the Group of 7, NATO and now the European Union, where he has consulted extensively with allies.

At these meetings, “I’ve been making the case that the U.S. and Europe — and democracies everywhere — are stronger when we work together to advance our shared values like fair competition and transparency,” Mr. Biden said in a statement. “Today’s announcement demonstrates exactly how that can work in practice.”

In a briefing for reporters on the aircraft deal, Ms. Tai said that both sides had agreed to extend a suspension of tariffs for another five years while working together to counter China’s investment in the aircraft sector, especially from state-run companies.

China’s state-sponsored aerospace manufacturer, Commercial Aircraft Corporation of China, completed the first public flight test of its passenger airliner in 2017, and is fast becoming a rival to both Boeing and Airbus in global aircraft construction. Also, China’s airlines are state-run, and Beijing can order them to buy domestically built planes, squeezing market share for Boeing and Airbus.

The United States and the European Union would work together, Ms. Tai said, “to challenge and counter China’s nonmarket practices in this sector in specific ways that reflect our standards for fair competition.”

In a post-summit news conference, Ms. Tai explained: “For almost 20 years we have been at each other’s throats, fighting each other in terms of competition between our industries. While we have been engaged in this fight, others are taking the opportunity to launch their own industries, and we have been too busy fighting each other to pay attention.”

But she cautioned that the agreement set limits on the subsidies that the European Union would be allowed to provide to Airbus, warning that the United States would reimpose billions of dollars in tariffs if subsidies by European Union countries crossed a “red line.”

“These tariffs will remain suspended, so long as E.U. support for Airbus is consistent with the terms of this agreement,” she said. “Should E.U. support cross the red line, and U.S. producers are not able to compete fairly and on a level playing field, the United States retains the flexibility to reactivate the tariffs.”

The agreement means that significant punitive tariffs estimated at $11.5 billion, on a wide variety of products including wine, tractors, spirits, molasses and cheese, will continue to be suspended after both sides had agreed to do so in March while they tried to settle the dispute.

The dispute between Airbus and Boeing over illegal state subsidies goes back nearly two decades. In 2019, the World Trade Organization ruled that the European Union had illegally provided support to Airbus, clearing the way for Washington to respond with tariffs worth up to $7.5 billion in annual trade.

About a year later, in a parallel case, it ruled that the U.S. benefits to Boeing also violated trade rules, authorizing Brussels to hit the United States with annual tariffs worth roughly $4 billion.

The agreement comes at a critical moment for both companies, which are struggling to overcome a slowdown caused by the pandemic. Most within the industry expect it to be years before airlines and plane manufacturers can fully shake off the effects of the downturn.

Both sides had already begun unwinding the subsidies, with Washington repealing a state tax break for Boeing last year, while Airbus had said that it would increase repayments of low-cost loans it received from multiple E.U. countries. Airplane purchases often take years to come together, and most airlines stick with one manufacturer to minimize pilot training and airplane maintenance costs. Still, the agreement removes a concern for both companies as they seek to boost sales around the world.

Ms. Tai described the new agreement as part of Mr. Biden’s effort to conduct what he has called “a foreign policy for the middle class.” She said resolving the dispute would protect 1.2 million jobs in the aerospace sector and related industries.

“The president routinely says that we are strongest when we work with our friends and allies,” she said. “Supporting Boeing means supporting good-paying jobs and a strong supply chain here at home.”

Mr. Biden has promised to ease trade tensions with allies, and his meeting with the top European Union officials, Ms. von der Leyen and Mr. Michel, was highly appreciated here.

Ms. von der Leyen described a warm session with Mr. Biden, who expressed, she said, “how much he cares about Europe.”

At the Group of 7 summit meeting in Britain, sitting with President Emmanuel Macron of France, Mr. Biden lavished praise on the European Union. “I for one think that the European Union is an incredibly strong and vibrant entity, that has a lot to do with the ability of Western Europe not only to handle its economic issues but provide the backbone and support for NATO,” Mr. Biden said.

That is a marked change from the expressed views of former President Donald J. Trump, who considered the European Union an “economic foe” and derided NATO members as free riders.

In some ways, the European Union, given its enormous economic power as a market and as a trading bloc, has more impact on American life than any other multilateral institution. Mr. Biden wants more support from the Europeans on restraining the damaging effects of the rise of China.

Major countries like Germany, France and Italy are reluctant to join Washington in an adversarial relationship with China, but attitudes are hardening because of Chinese human rights abuses at home, dodgy trade practices and widespread industrial espionage.

There remain other significant disputes between the United States and the European Union, most prominently another lingering case over Trump-era tariffs on steel and aluminum. In 2018, Mr. Trump used special “national security” provisions to impose the tariffs, which set off a larger trade war.

The European Union retaliated by targeting some $3.4 billion of American imports with tariffs on a range of big-brand products, including Harley-Davidson motorcycles, Levi Strauss & Co. jeans and bourbon whiskey.

Brussels suspended its retaliatory tariffs for six months in May, hoping to negotiate a longer-term solution on the problem of steel overcapacity worldwide.

Mr. Dombrovskis has urged Mr. Biden to “walk the talk” of comity and drop those tariffs.

The two sides are also discussing other complicated issues like trans-Atlantic data flows and digital privacy, carbon border taxes and digital taxes.

They also agreed to establish a new Trade and Technology Council to more formally consult on trade and technical standards. Part of the idea is to agree on how to limit Chinese digital ambitions in fields like artificial intelligence and cybersecurity and screen Chinese investments in those areas that could have security implications for Europe and the United States.

Monika Pronczuk and Niraj Chokshi contributed reporting.