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| Will Delta really fly Bombardier CS100s? Of Canada has trade "friends" like the US, who needs enemies... |
When it comes to capital-intensive businesses, commercial aircraft is among the most demanding of sheer funding. Especially when it comes to developing all-new models, the level of research and development required equates to a lot of money spent. Today's case in point is Canadian jetliner manufacturer Bombardier. Its niche is jets smaller than the smallest offerings of the industry titans Boeing [737] and Airbus [A320]. You'd think that not competing directly with them puts it in a safe spot, but
no:
Boeing’s beef with Bombardier concerns the CS100 jet, which has slightly more than 100 seats, a market niche that Boeing executives were once pretty sniffy about, possibly with good reason. Bombardier ran into all kinds of financial difficulties developing and trying to sell the innovative C Series, which led to a $1 billion bailout by Quebec in 2015. Bombardier persisted, yet no sooner had Delta thrown it a lifeline by placing a firm order for a few dozen C Series jets, Boeing fired off a complaint to the U.S. government.
Boeing’s fear, as its legal complaint makes clear, is that one day Bombardier will become a much stronger competitor. But Boeing’s aircraft sales are eight times larger than Bombardier's today. Taking legal action makes Boeing seem like both the playground bully and the class snitch.
Interestingly enough, it appears the first major trade war of the Trump administration will not be against China or Mexico, the usual targets of his anti-trade rhetoric. Instead, it will be against supposedly friendly Canada. To make a long story short, Boeing (which doesn't make the same-sized jets, again) complained to the US Commerce department that Bombardier received substantial subsidies in launching its latest mode, the CS100. Being then asked that tariffs be applied on Bombardier CS100s being sold Stateside. In this activity they were
more than successful:
The U.S. Commerce Department’s decision to tag Bombardier Inc.’s newest plane with retaliatory tariffs of more than 200 per cent[219.6% to be exact] was a blatant abuse of power. The complainant, Boeing Co., had asked for only an 80-per-cent penalty. Wilbur Ross, the commerce secretary, went bigger to remind the world that he could. “The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” Ross said in a press release.
You read that right: the Commerce department almost tripled the tariff Being sought since it wanted to make an example of these Canadian trade miscreants:Ross’s move was the equivalent of the schoolyard tough smearing a Cheez Whiz sandwich on the face of an innocent. He used the Bombardier press release to remind that his department had initiated 65 trade-related investigations since Inauguration Day, a 44 percent increase from the same period a year earlier. Economic historians have a term for this sort of behaviour: beggar-thy-neighbour. It comes from the Great Depression, when countries resorted to tariffs to “protect” jobs and only ended up making things worse.
Note that this is just an initial ruling; the ultimate tariff applied (if any) may be lower. However, rest assured that the Canadians are understandably outraged. At stake is an order for 125 CS100s ordered by the US-headquartered Delta Airlines. We're entering trade war territory as Canadian government figures are threatening to rescind a defense contract to buy 18 F-18 Super Hornet jet fighters from Boeing:[Canadian Foreign Minister] Freeland also repeated the threat to cancel the Liberal government's planned sole-source purchase of Boeing Super Hornet jet fighters. The Liberal government has been clear that this case "very much has a bearing" on the decision to buy the warplanes, said Freeland. "The government of Canada cannot treat, as a trusted partner, a company which is attacking our aerospace sector."
Prime Minister Justin Trudeau was even more blunt. Speaking two weeks ago beside British Prime Minister Theresa May, Trudeau said the fighter deal is all but dead. "We won't do business with a company that's busy trying to sue us and trying to put our aerospace workers out of business,'' he said.
I mentioned that it's not only the US against Canada, but also the US against the UK. You see, Bombardier has wing assembly operations in Northern Ireland, and Ulster would lose a lot of economic opportunities if the US mega-tariff holds. With May's government relying on the support of Northern Irish lawmakers--and her attempts to build a relationship with Trump--in mind, the result is disappointing:It’s no wonder Theresa May says she’s “bitterly disappointed” by the U.S. Commerce Department’s decision to impose punitive import duties on Bombardier Inc.’s new jetliner. It hurts the U.K. prime minister in several ways at once. First, it’s a blow to a big employer: More than 4,000 work for the company in Belfast, Northern Ireland, where the plane’s wings are built. Second, Northern Ireland is a sensitive area for British politics: It is only because May’s Conservatives have the support of 10 lawmakers from the region that she’s able to govern.
Third, it’s a personal embarrassment: After spending political capital at home to try to build a close relationship with Donald Trump, she raised the issue with him both by phone and in person, with no obvious result.
Going forward, the UK is said to be
reconsidering awarding more defense contracts to Boeing:
British defence minister Michael Fallon has also criticised Boeing. He ruled out cancelling existing orders with Boeing for nine P-8 spy planes and 50 Apache helicopters, but added the U.S. firm was seeking other UK contracts.
Boeing has risen since 2000 from a relatively minor defence supplier to become one of Britain’s top five following the purchase of C-17 transporters and Apache attack helicopters, according to defence analyst Francis Tusa.
The game commences. Whether Canada and likely the UK take the US to the WTO for a complaint will depend on what tariff is ultimately applied to the Bombardier CS100 Stateside.
