The US just slapped an astronomical 220 percent tariff on a new line of Bombardier jets after Boeing accused the Canadian company of receiving unfair government subsidies.
It’s an incredibly harsh penalty that has angered two of America’s closest allies, Canada and the United Kingdom (where Bombardier manufactures this line of jets’ wings and provides thousands of jobs). Those countries have threatened to retaliate against the US by dropping contracts with Boeing for defense aircraft, potentially costing thousands of US jobs.
This isn’t a case of President Donald Trump trying to boost US companies at the expense of foreign competitors. It was Boeing that filed the initial complaint with the federal government, and the Trump administration’s management of it isn’t necessarily that different from what previous administrations might have done in these kinds of cases.
“Even our closest allies must play by the rules,” US Commerce Secretary Wilbur Ross said in announcing the decision.
But the timing is awkward. Trump has already put trading partners on edge with his aggressively protectionist trade policy and rhetoric. And he’s currently navigating tough renegotiations over NAFTA with Canada and is considering a free trade deal with the UK — sensitive discussions that require trust between participants to go smoothly.
What’s more, the aircraft industry is a prestigious sector that provides high-paying manufacturing jobs, which makes any attack on it politically sensitive. If Canada and the UK choose to retaliate against Boeing, Trump could ultimately find himself facing political backlash for playing a role in hurting a prized part of the US job market.
Boeing is afraid of Bombardier — and it wants the government’s help
Boeing claims Bombardier’s new C Series aircraft have an unfair advantage over its own similar aircraft in the US market due to the nature of subsidies the company receives from the Canadian and British governments.
While subsidies are common in the aircraft industry and Boeing receives plenty of them from the US government, it claims the specific kinds of subsidies that Bombardier receives are unfair.
As Edward Alden, a senior fellow and trade expert at the Council on Foreign Relations, explains, Boeing’s aid comes in the form of favorable defense contracts and tax breaks on the state level. Bombardier’s subsidies, by contrast, come in the form of the government effectively partnering with the company in funding the early stages of product development.
Alden says there is at least “some merit” to Boeing’s claim insofar as Bombardier’s subsidies do eliminate risk for it in a way that Boeing’s don’t.
In this specific case, Boeing points to Bombardier’s sale of its C Series aircraft to Delta Airlines in 2016 as evidence. Boeing says Delta bought each jet for $19.6 million despite the fact that their list price is close to $80 million. (Delta says Boeing’s claim is inaccurate.)
The C Series is a new kind of line for Bombardier — and marks its entry into the midsize aircraft market. Analysts say Bombardier is breaking into a market that Boeing is already a major player in, and that’s making them very uncomfortable.
“Boeing doesn’t want them in this market segment competing with them,” Doug Irwin, a trade scholar at Dartmouth College, told me.
So Boeing took its complaint to the federal government.
The current tariff is preliminary. The International Trade Commission will do a thorough review of the evidence in the coming months and determine if Boeing’s claims are valid and could uphold the tariff, reduce it, or drop it altogether.
Canada and the UK are very, very angry
Canada's foreign affairs minister, Chrystia Freeland, said in a statement that Canada “strongly disagrees” with the ruling and that it is “clearly aimed at eliminating Bombardier's C Series aircraft from the US market." And British Prime Minister Theresa May tweeted that she’s “bitterly disappointed” by it.
But the consequences could be far more serious than hurt feelings. UK Defense Minister Michael Fallon told reporters in Belfast, “This is not the behavior we expect from Boeing, and it could indeed jeopardize our future relationship with them.” Boeing’s relationship with the British military dates back nearly 80 years and involves the sale of equipment like Chinook transport helicopters and Apache attack helicopters.
Canada too has threatened to drop contracts with Boeing over this ruling. Earlier in September, Canadian Prime Minister Justin Trudeau threatened that Canada would halt its purchase of Boeing’s F-18 Super Hornets if the company continued to pursue its challenge against Bombardier.
“We won’t do business with a company that’s busy trying to sue us and put our aerospace workers out of business,” Trudeau said during a press conference.
Canada and the UK will also likely view the US with more skepticism during negotiations over free trade agreements in the coming months because of the row.