Boeing’s War on Competition

05.02.18
Boeing
Business /02 May 2018
05.02.18

Boeing’s War on Competition

The aircraft manufacturer Boeing has declared war on its competition. Faced with commercial aircraft manufacturers encroaching on its market from all sides, Boeing has gone on the offensive. Boeing has launched bold legal cases against the European aircraft manufacturer Airbus and Canada’s Bombardier in an attempt to fight for fairer competition. Yet, both of these cases pose significant diplomatic risks for the United States that could be exacerbated by the Trump administration’s protectionist attitudes.

Last year, Boeing filed a complaint with the United States Department of Commerce and the United States International Trade Commission alleging Bombardier engaged in price dumping when it sold 75 C-Series aircraft to Delta Air Lines. Aviation has always been a nationalistic enterprise, and Canada’s reaction, to what it saw as an unwarranted attack on its struggling aircraft manufacture, was swift. The Canadian government immediately canceled an all but closed deal to buy F-18 fighter jets from Boeing and Prime Minister Trudeau made his displeasure publicly known to President Trump.

Yet, the implications of Boeing’s legal case spread beyond United States-Canada relations. The wings for the C-Series are built in the United Kingdom and Prime Minister May threatened a trade war if Boeing continued its legal case. Falling back on its nationalistic principles, the Trump administration, through the Department of Commerce, sided with Boeing and instituted tariffs totaling over 200% on all C-Series aircraft imported into the United States.

While the International Trade Commission ultimately reversed the tariffs, the Trump administration was willing to put both NAFTA and the special relationship with the United Kingdom at risk. Given that C-Series aircraft sales in the United States total a meager $5.6 billion, and United States’ goods and services trade exports to Canada and the United Kingdom tops $365.5 billion a year, this was a rather short-sighted decision. The benefits from protectionism were far outweighed by the potential of a tit-for-tat trade response by either Canada or the United Kingdom.

Similarly, both Boeing and Airbus have been filing cases against each other in the World Trade Organization since 2005. Boeing alleges the launch aid Airbus receives from various European governments, and only has to pay back if the new aircraft type succeeds, constitutes an illegal state subsidy. Airbus, on the other hand, alleges the tax breaks and generously paying military contracts Boeing receives are also illegal. After five years of litigation, in 2010, the WTO ruled the $22 billion in launch aid Airbus received was illegal and ordered Airbus and the European Union to rectify the situation. After Airbus and the EU failed to rectify the situation, the WTO reaffirmed its decision in 2016. Airbus has since appealed the decision. While the final ruling will not be out until spring of this year, considering the WTO has previously sided with Boeing twice before, there is every reason to believe the final decision will be in Boeing’s favor.

The ramifications from the WTO’s decisions spread far beyond the relationship between Boeing and Airbus. If, in the appeal, the WTO sides with Boeing, then the United States government could apply tariffs likely totaling between 7 and 10 billion dollars on imports into the United States from the European Union. This would be disastrous for the United States’ relationship with Europe. Yet, there is every indication Boeing will lobby the United States to apply the tariffs. And, given the overall protectionist attitude of the Trump administration and the prior precedent set with Bombardier, it is likely the tariffs would be applied.

Retaliatory tariffs would come on the backdrop of worsening European attitudes towards the United States. According to the Pew Research center, European favorability towards the United States has fallen between 10 and 30% since Trump took office. Combined with Trump’s wavering commitment to NATO, the punitive tariffs would severely and negatively impact the once strong United States relationship with the European Union. Considering many European Union members constitute some of the United States’ closest allies, and are NATO members, the potential punitive tariffs hardly seem worthwhile. There is also considerable risk that the European Union would institute retaliatory tariffs on United States imports, starting a trade war.

It may even be too late to avoid a trade war. Canada has already retaliated, filing a wide sweeping trade case with the WTO, alleging the United States has unfairly fixed tariffs on Canadian goods in order to reduce competition and undermine NAFTA. The complaint was partly motivated by how the United States government responded to Boeing’s suit against Bombardier. It is clear there is a potentially high political cost for the United States in supporting Boeing’s fight for fairer competition.

Moving forward, as the WTO prepares to issue its decision on the legality of Airbus’ launch aid, the United States should make it clear that Boeing stands alone. The potential cost of supporting Boeing’s fight for fairer competition is simply too high for the United States. Especially when compared to the cost of Europe’s potential response. Considering how close the historical relationship between Europe and the United States has been, it hardly seems worthwhile to potentially risk that relationship over a few airplanes.

And yet, the liberalist world order under which Boeing, Airbus, and Bombardier compete is founded upon the basis of fair competition, between states and companies arbitrated by international bodies. It is well within any company’s or state’s right to fight for fairer competition with its international peers when international trade laws are violated. However, a liberalist world order is meant to reduce conflict between states, that exist within a system of anarchy, through international bodies and cooperation. Boeing’s fight for fairer competition does the opposite. If the United States were to support Boeing’s fight for fairer trade, it would reduce cooperation, not increase it. And while the United States government does have an obligation to protect the companies operating within its borders, its responsibility is first and foremost to its citizens, the majority of whom would be hurt if the United States government supported Boeing in its fight against Airbus.

Effective diplomacy, especially with NATO member countries, is responsible for ensuring the security of the United States. Therefore, the United States, and all states to some degree, should weigh the diplomatic ramifications resulting from supporting companies engaged in international disputes. Boeing’s disputes with Airbus and Bombardier are an example of this. Given the high diplomatic cost of supporting Boeing, the United States should look to distance itself from Boeing as Boeing continues to fight for fairer competition.

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