A New Approach on Trade? The Bombardier-Boeing Dispute and “America First”

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Courtesy https://commons.wikimedia.org/wiki/File:CS100-FTV1-Parking.jpg

In 2016, Canada-based aerospace company, Bombardier, reached an agreement with Delta Airlines to sell them 75 of their new CSeries jets, with an option to buy 50 more. What followed was a bitter trade dispute. U.S. aerospace giant Boeing, despite not having bid on the contract, cried foul. Bombardier, Boeing claimed, was engaged in “dumping”—selling their planes unfairly cheaply on the U.S. market, harming its ability to sell its own 737-family jets. Boeing’s complaint stated that the CS100 was being sold at $20 million each, below the $33 million production cost. The full details of the deal are not public. Boeing’s claim was partially based on the fact that the Canadian government has provided Bombardier with substantial assistance, and it was alleged that the planes were being sold to Delta at below the cost of production. In spite of the fact that Boeing receives billions in corporate welfare (through institutions such as the Import-Export bank), subsidies, tax incentives, and government contracts, Boeing asserted that the extent to which Bombardier was subsidized enabled them to dump their planes on the US market.

On September 26th, 2017, the U.S. Commerce Department agreed, issuing a decision that imposed a 292% tariff on the airplanes, should they be delivered to Delta Airlines. This tariff was overturned by a 4-0 vote of the U.S. International Trade Commission (ITC) on January 26th. While the publication of the decision is pending, the Commission unanimously voted that Boeing did not suffer harms for the import of Bombardier’s CSeries jets.

The Commission’s ruling is a victory for free trade and open borders in an era of increasing protectionist rhetoric under the Trump administration. However, this dispute is illustrative of the new normal in Canadian-American trade relations. As NAFTA is renegotiated, this dispute shows the different approaches that may be taken by the American and Canadian governments in upcoming negotiations. It is not encouraging.

The approach of the American government in this dispute has been unabashedly in support of Boeing. It is telling that the new administration wished to appear tough on trade. When announcing the tariff that the commerce department was imposing, Secretary Wilbur Ross stated: “The U.S. values its relationships with Canada, but even our closest allies must play by the rules … The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously”. This public stance from the Trump administration is hardly surprising. Having rode into the White House on a wave of anti-trade rhetoric, it is not unexpected that the Trump administration is taking a hard line against what it sees as unfair competition against one of America’s largest companies.

The extent to which the Trump administration was willing to go to bat for Boeing was unexpected. Firstly, the tariff imposed by the Commerce Department (overturned by the ITC), was far in excess of the tariff that Boeing proposed. Various reports suggest that Boeing proposed anything from an 80% to 160% tariff. The actual imposed tariff was far greater, almost 300%. Secondly, the Trump administration took this stance in spite of the fact that Boeing did not bid on the sale of these planes to Delta, and that Bombardier currently employs 7,000 workers across the United States, producing parts for the planes as well as assembling them. These jobs were put at risk by the use of punitive tariffs in an attempt to render these CSeries planes unmarketable.

The Trump administration’s approach to this case has shown its preference for victories of symbolism rather than substance. Had the tariffs been upheld, it likely would have resulted in several thousand Americans across the country losing their jobs. But a symbolic victory would have been achieved – the US market for planes would have been safeguarded from foreign competition, and Boeing would have been spared from possible future competition from Bombardier. Without a market for their CSeries planes, and with much riding on the initiative, it is possible that Bombardier would not have been able to financially survive these tariffs being upheld. It was partially that fear that led Bombardier to sell a 50% stake in the CSeries program to Airbus, in order to hedge against any loss. Thus, despite the likely impacts; American job losses, a chilling effect on Canada-US trade relations, and Delta likely being left out in the cold—the Trump administration was still willing to pursue the symbolic victory, and it was the ITC, an independent, quasi-judicial commission, and not the Commerce department, an integrated part of the executive branch, which struck down these tariffs. This does not bode well for the future of NAFTA, where American negotiators will face no such independent restraint. The economic reasons against imposing tariffs were insufficient to prevent the administration from imposing very punitive tariffs. This demonstrates that the Trump administration may be willing to swallow economic punishment for a symbolic “win” in the NAFTA negotiations.

The Canadian response to the trade dispute also leaves much to be desired. As is common in the aerospace industry, the Canadian government was very invested in the success of Bombardier, and had in the past provided loans and subsidies to the struggling aerospace company. The Quebec provincial government had purchased a 49% stake in the CSeries program in 2016 for $1 billion. The tariffs posed a significant threat to the Canadian aerospace industry as a whole, as well as the government’s investment in it. The Canadian government had the option to wait until the ITC’s review of the tariffs, which was fully expected to rule in Boeing’s favor, or take remedial action. They chose the latter. In response to the imposition of tariffs, Canada scrapped its own plans to buy a fleet of 18 Boeing Super Hornets for its military—an order worth over $5 billion. Instead, Canada has chosen to buy a set of used fighters from the Australian Air Force, a major loss to Boeing.

The signs from the Boeing-Bombardier dispute are not encouraging. At the first sign of trouble, a trade relationship that has, in the past, been at least cordial, if not always cooperative, quickly devolved into a protectionist dogfight—a series of tit-for-tat exchanges in which neither country won. If this dispute has set the tone for NAFTA’s renegotiations, all parties will be in for a very tough negotiation.

Alastair Smith is a second-year student at Columbia Law School. He graduated from University of Toronto, Trinity College, with a degree in Economics and International Relations.