Aerial assault could be the start of a trade war

Aerial assault could be the start of a trade war

By: Rachel Marsden

PARIS -- Aerospace companies are foreign-policy instruments whose interests are separated from those of their host countries by a thin veil. When U.S. aerospace company Boeing and European aerospace company Airbus point fingers at each other at World Trade Organization hearings, each accusing the other of benefiting from government assistance, it becomes clear that this is the only acceptable way for the U.S. and Europe to wage war against each other in the 21st century.

And now, apparently, it's Canada's turn. Despite U.S. President Donald Trump's earlier threats to impose tariffs on Chinese imports in order to protect the U.S. economy, it's Canada's Bombardier Inc. -- a maker of trains and planes -- that has recently become the most high-profile target of the Trump administration's economic protectionism.

Last week, Secretary of Commerce Wilbur Ross announced that the U.S. government plans to impose a 220 percent import duty on 75 Bombardier C-Series planes sold to Delta Airlines last year because Bombardier had supposedly received unfair support from Great Britain, Canada and the Quebec provincial government.

"The subsidization of goods by foreign governments is something that the Trump administration takes very seriously," Ross said.

The Department of Commerce announcement declared (without a hint of irony) that the petitioner in the department's investigation into the matter was Boeing, the same company that benefits from U.S. government research and development grants, tax breaks and government defense contracts -- including contracts with Canada and Great Britain, who partnered in manufacturing the C-Series. Both countries' governments are now threatening to pull Boeing defense deals off the table as a result of the decision.

It was only a few months ago that Trump pressured Canada and other NATO members to increase military spending, which of course would mean more purchases from American defense contractors such as Boeing. Canada agreed to a 73 percent increase over 10 years, even though the average Canadian is still wondering what sort of security threat against Canada would justify a jump to $24.2 billion per year.

Bombardier, Canada's only big player in the aerospace industry, has been criticized for accepting a billion-dollar Quebec provincial government stock investment and repayable loans from the Canadian federal government. It's a pittance compared with the systemic government support enjoyed by other industry players.

A U.S. State Department cable from 2009, later published by WikiLeaks, lamented that, "In the early 1990s, Boeing had a 90 percent market share in China, versus 5 percent for Airbus. Today, Airbus is up to 30 percent, Boeing down to 50 percent, and other vendors such as Bombardier have entered." The cable makes the State Department sound like a commercial sales representative giving a presentation to stakeholders.

A State Department cable from 2005 expressed concern over Bombardier's ambitions, asking, "How will Boeing and Airbus respond to encroachment from Bombardier and (Brazilian competitor) Embraer?"

Yet another cable from 2009 outlined a meeting between U.S. and Canadian trade officials during which a Canadian representative said the finance minister would "go ballistic" if the U.S. asked Canada to curtail its assistance to Bombardier at a time when the U.S. was "intervening everywhere else to Canada's detriment." This was a reference to the U.S. government's private-sector bailouts during the global economic crisis, along with some related "buy American" provisions.

It's hard to argue that there's any daylight between these industry players and their respective governments when government representatives are actively informing, intervening and negotiating on their behalf.

Delta Airlines places an order with a Canadian company. Boeing runs crying to Uncle Sam, who promptly tries to end to the budding relationship by telling Delta, "I'm not saying that you can't take your date out in the car, just that I'll charge you 220 percent more for gas."

While Trump allows Delta (and hence its passengers) to be hammered with import duties on new planes from Canada that it was trying to get at a good price, Delta has been begging the government for help in combating the loss of international routes to government-subsidized Middle Eastern carriers. Just wait until Russia and China enter the market in a decade or so with their long-haul CR 929 commercial jet.

The aerospace industry demonstrates why corporate welfare is a bad idea. It creates "too big to fail" monopolies, plays favorites and stifles free-market competition. Through subsidies and government assistance, it forces taxpayers to absorb the cost of corporate mistakes while sending profits into the pockets of shareholders. If one player starts accepting corporate welfare, then all of the other players are justified in doing so.

This genie simply isn't going to be shoved back into an economy-class seat. Buckle up for some turbulence.