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Trump's win in Bombardier dispute is Boeing's loss
Saturday, October 21, 2017
LONDON -- Watch for it. Any day now, Donald Trump will take to Twitter to announce the "great" news that he has created manufacturing jobs in Alabama, where Airbus is to build the American version of Bombardier's C Series jet.
Never mind that the catalyst for Alabama jobs was the absurd import tariffs - preliminarily set at 300 per cent - that the U.S. Commerce Department slapped on the C Series a couple of weeks ago. The tariffs not only destroyed any chance that the C Series could find buyers in the United States, driving the struggling plane into the hands of Europe's Airbus, but created far more losers than winners, in the United States as well as globally.
Canada beware. Mr. Trump's zeal for trade-distorting measures, on prominent display in the C Series drama, might be repeated in the NAFTA negotiations. If they are, "the worst trade deal ever," as the President repeatedly calls NAFTA, might be doomed.
To be sure, the tariffs on the C Series will create jobs in Alabama, where Airbus already assembles the mid-sized A320 passenger jet - the archrival to the Boeing 737 - for U.S. customers. Just how many jobs, and when, is an open question. But never mind; Mr. Trump will not doubt exaggerate the value of the job-creation exercise, declaring the new C Series assembly line a rip-roaring example of his "America First" policy in action.
There will be no tweets, of course, about the damage done to Boeing, the United States' premier civil and military aerospace company, which lobbied for tariffs on the C Series to prevent the plane, the recipient of aid from the Canadian and Quebec governments, from being sold at "absurdly low" prices in the United States (Delta Air Lines had agreed to buy 75 of the Bombardier jets).
The Trump administration duly hit the C Series with monster tariffs.
But they backfired on Boeing almost immediately. Boeing apparently hoped the tariffs would send the jet to an early grave.
The opposite happened. A desperate Bombardier recruited Airbus as the C Series's saviour. Airbus is to take 50.01 per cent of the plane, paying nothing up front, pushing down Bombardier's ownership to 31 per cent, and the Quebec government's to 19 per cent. The formidable John Leahy, Airbus's chief operating officer and the commercial-jet industry's most successful salesman, will be responsible for selling the plane and the Alabama factory probably will allow it to escape the import tariffs. Boeing will again have a tough competitor in the 100- to 150seat, single-aisle aircraft market in the United States.
Boeing loses in another way too.
Having worked hard to destroy the C Series, the Canadian government is hardly likely to reward Boeing with fat defence contracts, such as its plan to replace Canada's clappedout CF-18 fighter bombers with the new generation of F/A-18s, which are made by Boeing. The F/A-18s had been at the top of Canada's procurement list. Canada is now likely to consider buying non-Boeing planes, such as the Eurofighter Typhoon - which is made by a European consortium that includes Airbus - or France's Dassault Rafale.
More jobs for Airbus in Alabama could translate into fewer jobs at Boeing's fighter-jet plants.
The list of losers doesn't stop with Boeing. The global airline market is a big-time loser, too, as the theory of unintended consequences kicks into action. The tariffs aimed at killing the C Series are likely to trigger a wave of consolidation that will deprive airlines of fleet choices.
Before the tariffs fiasco, Bombardier still had some chance of keeping the C Series alive itself. The Delta order probably would have been followed by other U.S. orders and Bombardier might have been able to negotiate a grace period on its debt maturities until the C Series cash flow came gushing in. With the tariffs in place, Bombardier had little choice but to move into the Airbus orbit and might eventually be owned outright by Airbus.
Now, Bombardier has effectively been neutered as a global passengerjet competitor. Aviation analyst Richard Aboulafia, of the Teal Group, thinks the Airbus-Bombardier partnership will push Brazil's Embraer, the maker of the popular 80- to 124-seat jets used by Air Canada and other operators of short-haul routes, into an alliance with Boeing.
The result would be reduction of a four-manufacturer market - Airbus, Boeing, Bombardier and Embraer - into a market of just two players (the Chinese are still many years away from producing a globally competitive passenger jet). As competition wanes, prices will inevitably rise and innovation will fall.
American protectionism has, virtually overnight, warped the entire market for passenger jets and airlines will pay the price.
Which brings us to the next big trade war - NAFTA.
The Trump administration is demanding an overhaul of NAFTA that can only wreck the spirit, efficiency and value of the three-country trade deal. For instance, he wants to kill the disputes-resolution system and is insisting that half of all duty-free content in cars made in the NAFTA region comes from the United States. These demands, and others, may prove unacceptable to the Canadians and the Mexicans, meaning the death of NAFTA is not out of the question as the United States retreats into its "America First" fortress. The market-distorting tariffs on the C Series showed the NAFTA negotiators that, under Mr. Trump, global free trade is going into reverse at an alarming speed.
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