The Radiating Mischief of Protectionism

By George Will

Saturday, October 28, 2017

Washington — What a tangled web we weave when first we practice to deceive ourselves into believing that corporate welfare can be seemly. Consider the caper, both amusing and depressing, that began when mighty Boeing sought protection behind the skirts of the U.S. Department of Commerce.

Boeing, America’s 39th largest corporation by market capitalization (over $150 billion) and 24th by revenues ($94.6 billion), complains that it is being injured because the Canadian aircraft manufacturer Bombardier (market capitalization around $5 billion) was “dumping” its C Series passenger planes in the U.S. market. That is, selling them unfairly cheaply to U.S. buyers. The nature of Boeing’s injury is unclear because it does not make a plane that directly competes with the C Series. Boeing’s complaint came after Bombardier agreed to sell 75 to Delta Airlines for $5.6 billion, a contract for which Boeing did not bid. The C Series single-aisle planes, which seat 100 to 160 passengers, are smaller than Boeing’s 737.

All manufacturers of commercial aircraft, including Boeing, sell their products for amounts substantially below list prices. (Boeing’s 787 lost $29 billion over five years before becoming profitable last year.) Boeing, however, cheekily charges that Bombardier is able to be excessively nice to U.S purchasers because the C Series receives government subsidies, including equity investments, worth under $2.8 billion. This is, however, the Boeing pot calling the Bombardier kettle black.

Bombardier is indeed subsidized to a fare-thee-well. The Canadian government subsidizes the Montreal-based company, as does the province of Quebec. But the U.S. government essentially provides Boeing with its own financial institution: The company is by far the largest beneficiary of what is known as “Boeing’s Bank” — the misbegotten Export-Import Bank. It provides cheap loans to Boeing’s overseas customers, lowering the real prices they pay. In 2014, 68 percent of the bank’s long-term loan guarantees — its primary business — was on Boeing’s behalf. Boeing also benefits from government contracts — 23 percent of its 2016 revenue; the Defense Department is its largest customer — and from state governments’ incentives worth billions (e.g., $8.7 billion from Washington state).

Nevertheless, the Commerce Department, succoring Boeing with compassionate conservatism, imposed an astonishing 219.63 percent tariff on imports of Bombardier’s C Series, supposedly to compensate for subsidies the company receives, and another 79.82 percent as punishment for not charging Delta, a U.S. airline, more. This 299.45 percent duty — Boeing had suggested 160 percent — would quadruple the planes’ price, effectively closing the U.S. market to them, thereby threatening Bombardier’s survival.

Which probably interests the approximately 7,000 Americans in 17 states who work in Bombardier facilities making aerospace and railroad products. Furthermore, Bombardier spends $3 billion annually on U.S. suppliers in 48 states. Other Americans who might be collateral damage from protectionism are those who make Boeing fighter jets. Canada’s Prime Minister Justin Trudeau responded to the U.S. action by suspending plans to spend over $4.8 billion on the fighters.

British Prime Minister Theresa May, too, is not amused. Bombardier employs more than 4,000 in Belfast to make the C Series’ wings. May, weakened by the June general election, clings to power through an alliance with members of Parliament from a party in Northern Ireland. And as she struggles to negotiate Britain’s exit from the European Union, she has been pointing to shimmering future trade agreements with the United States.

Desperate times call for desperate measures, so Bombardier gave 50.01 percent control of the C Series program to Boeing’s rival in this duopolistic business, Airbus, the European multinational corporation that also gets lavish assistance from governments. For this control, Airbus pays nothing, merely agreeing to put its vast marketing, maintenance, and customer service expertise into competition with Boeing in what the Financial Times calls “the booming single-aisle market, which is expected to account for more than 70 percent of aircraft orders over the next 20 years.”

Bombardier’s and Airbus’ CEOs said with straight faces that their companies’ marriage is unrelated to the fight that Boeing might now regret having started, especially now that Airbus says it will manufacture C Series planes in the Alabama plant where it makes A320 airliners. Delta, which says it plans to buy those 75 planes when they are made there, presumably expects Airbus to avoid the 299.45 percent penalty. This, however, might depend on U.S. bureaucrats’ abstruse calculations of whether more than 50 percent of the cost of the C Series’ components come from U.S. sources.

Evidently it is insufficiently obvious that tariffs should not be imposed on planes made in America by Americans and sold to an American airline. Who will protect Americans from the radiating mischief of protectionism?