US Dept of Commerce puts 220% tariff on Bombardier(businessinsider.com)
businessinsider.com
US Dept of Commerce puts 220% tariff on Bombardier
http://www.businessinsider.com/boeing-commerce-department-bombardier-tariff-219-trade-war-2017-9
60 comments
This: aircraft financing is a morass of government subsidies and every trade dispute (of which it seems like there's always one) smacks of pots calling out kettles.
In other news, Bombardier is a brand of beer in the U.K. And that headline was rather confusing until I got into the article.
In other news, Bombardier is a brand of beer in the U.K. And that headline was rather confusing until I got into the article.
> There would be 0 large planes in the sky if governments were not involved.
Absolutely. Because there are NO private smaller plane building companies who would gladly design and build larger planes if the market asked for them. If the market itself was not deeply corrupted by massive government intervention...
Absolutely. Because there are NO private smaller plane building companies who would gladly design and build larger planes if the market asked for them. If the market itself was not deeply corrupted by massive government intervention...
They might gladly do it, but they would also need someone to gladly lend them the large amount of capital required, which is the bigger ask.
Banks?! Investment funds?! Bonds? Stock?! Pretty much any open Capital Market?!
To imagine that only an all-knowing and all-powerful Government can do such thing is a lack of imagination and putting too much trust into a type of organization that has been proven over and over again at worst monopolistic and corrupted and at best incompetent.
To imagine that only an all-knowing and all-powerful Government can do such thing is a lack of imagination and putting too much trust into a type of organization that has been proven over and over again at worst monopolistic and corrupted and at best incompetent.
"Banks?! Investment funds?! Bonds? Stock?! Pretty much any open Capital Market?!"
Zero of them.
There is $0 available for anyone wanting to spend billions of dollars developing risky technology for a market that does not exist.
Nuclear power came from the Manhattan project.
Jet engines.
Large aircraft.
GPS.
The Internet.
All of those come from defence spending and would not have come to fruition from private markets.
Your thesis is dismissed by the fact that there are zero large aircraft makers in the world that exist without having been created by - and - supported by governments.
If what you said is true: Airbus and the new Chinese aircraft company would have been made long ago by 'private investors'.
Even the sales cycle for large aircraft depends on the diplomatic corps of nations. Sales of large aircraft are often tied to other geopolitical issues.
Zero of them.
There is $0 available for anyone wanting to spend billions of dollars developing risky technology for a market that does not exist.
Nuclear power came from the Manhattan project.
Jet engines.
Large aircraft.
GPS.
The Internet.
All of those come from defence spending and would not have come to fruition from private markets.
Your thesis is dismissed by the fact that there are zero large aircraft makers in the world that exist without having been created by - and - supported by governments.
If what you said is true: Airbus and the new Chinese aircraft company would have been made long ago by 'private investors'.
Even the sales cycle for large aircraft depends on the diplomatic corps of nations. Sales of large aircraft are often tied to other geopolitical issues.
You seem so absolutely sure of everything.
Almost any example I can think of points to governments as a source of corruption and waste.
But maybe you know better.
Almost any example I can think of points to governments as a source of corruption and waste.
But maybe you know better.
Plus I believe the market is very much state backed. Negotiations often involve the manufacturing countries that will apply pressure or incentives. So it's not exactly a free market either.
> Of course one could argue Boeing receives massive 'subsidies' from the US government in terms of pork-laden defence spending contracts.
Were their defense programs (which includes clients outside the US, one of the interesting aspects of this move on their part, as they still want to sell Canada military planes) subsidizing their commercial operations, why would they not simply shut the commercial side down and keep more of that sweet, sweet, defense money as pure profit?
Of course, if it doesn't, why doesn't Lockheed build out a commercial division? Do the technologies for each application just diverge too far to make it an irresistible combo?
Were their defense programs (which includes clients outside the US, one of the interesting aspects of this move on their part, as they still want to sell Canada military planes) subsidizing their commercial operations, why would they not simply shut the commercial side down and keep more of that sweet, sweet, defense money as pure profit?
Of course, if it doesn't, why doesn't Lockheed build out a commercial division? Do the technologies for each application just diverge too far to make it an irresistible combo?
I think the idea is that Boeing gets a big head start on some commercial applications. E.g. they build a military cargo aircraft and can bill all of the R&D to the govt, then quickly convert the plans to something UPS wants.
Probably similarly for flight control software, electronics etc.
Though I'm not sure how much transfer you would see now that the designs for commercial planes are so mature.
Probably similarly for flight control software, electronics etc.
Though I'm not sure how much transfer you would see now that the designs for commercial planes are so mature.
Why throw good money away?
"subsidizing their commercial operations, why would they not simply shut the commercial side down and keep more of that sweet, sweet, defense money as pure profit?"
They are not subsidizing commercial operations with money, commercial operations is not operating on a loss long term. One small example, having billions of defense income makes your debt much cheaper. If they even need debt. From working in an enterprise company it's common to move money around on a zero interest rate basis. One part needs a billion $ to develop something or for marketing? Done. Some years later it gives that money "back". Zero interest. It was amazing.
"subsidizing their commercial operations, why would they not simply shut the commercial side down and keep more of that sweet, sweet, defense money as pure profit?"
They are not subsidizing commercial operations with money, commercial operations is not operating on a loss long term. One small example, having billions of defense income makes your debt much cheaper. If they even need debt. From working in an enterprise company it's common to move money around on a zero interest rate basis. One part needs a billion $ to develop something or for marketing? Done. Some years later it gives that money "back". Zero interest. It was amazing.
Getting cheaper debt means subsidization of one line of business from another.
Also - government spending is often more predictable and long term and provides a solid operating basis upon which to do other things.
And of course is the R&D and know-how overlap, in addition to all of the other things.
Also - government spending is often more predictable and long term and provides a solid operating basis upon which to do other things.
And of course is the R&D and know-how overlap, in addition to all of the other things.
I'm not getting your argument
"They are not subsidizing commercial operations with money"
"Getting cheaper debt means subsidization of one line of business from another."
"They are not subsidizing commercial operations with money"
"Getting cheaper debt means subsidization of one line of business from another."
> There would be 0 large planes in the sky if governments were not involved.
There would be as many as the market demands
There would be as many as the market demands
"There would be as many as the market demands"
I disagree.
There are many, many industries wherein barriers to entry are far too significant for private capital to take the risks - moreover - especially in areas of innovation, some things would not exist.
The internet itself would not have existed without having first been developed by the military, and then by academia.
Were it not to have been built - what 'startup' in 1965 was going to spend 30 years developing protocols, selling 'it' (whatever 'it' was in terms of a product) to universities etc.
Think GPS. Who's going to invent this tech out of nothing, and pay for a satellite program (back in the day when it was obscenely expensive to put stuff in space) for a market that does not exist? What's the business plan in 1965 for a 'GPS startup'?
Aircraft is much the same way.
Europeans are not stupid - they have smart enough capital and R&D, but the only way Airbus got off the ground was by massive political intervention.
Same for Nuclear Energy and some other forms of energy development.
And all of this aside from the fact that so much advancement came out of WW2 (and other wars) - which is R&D that the industry receives as a free, externalized benefit.
I disagree.
There are many, many industries wherein barriers to entry are far too significant for private capital to take the risks - moreover - especially in areas of innovation, some things would not exist.
The internet itself would not have existed without having first been developed by the military, and then by academia.
Were it not to have been built - what 'startup' in 1965 was going to spend 30 years developing protocols, selling 'it' (whatever 'it' was in terms of a product) to universities etc.
Think GPS. Who's going to invent this tech out of nothing, and pay for a satellite program (back in the day when it was obscenely expensive to put stuff in space) for a market that does not exist? What's the business plan in 1965 for a 'GPS startup'?
Aircraft is much the same way.
Europeans are not stupid - they have smart enough capital and R&D, but the only way Airbus got off the ground was by massive political intervention.
Same for Nuclear Energy and some other forms of energy development.
And all of this aside from the fact that so much advancement came out of WW2 (and other wars) - which is R&D that the industry receives as a free, externalized benefit.
Even integrated circuits, according to The Chip by T.R. Reid. He writes that for several years they were too expensive to compete with wiring together discrete components, but suddenly the space race and arms race demanded small, light electronics, so government purchasing funded the early years of IC development. I don't know if he's right, but it sounds convincing.
Unfortunately we just cannot explore the counterfactual and just have to do post hoc ergo procter hoc. No matter how big the private sector investment is, there will be some Government investment as well. That is enough to question whether the private sector can even come up with shoes on it's own.
Totally, like an Electric Car!
What private company would ever be able to invest in R&D and especially in the necessary charging infrastructure?
Only a Government can have the resources and vision to create an electric car. Without Governments there would be 0 electric cars on the road.
What private company would ever be able to invest in R&D and especially in the necessary charging infrastructure?
Only a Government can have the resources and vision to create an electric car. Without Governments there would be 0 electric cars on the road.
Tesla was kept afloat by EV tax credits and government loans. I'm afraid you'll have to find John Galt in another castle.
I believe it is impossible today to have a company function without interacting with (and taking advantage of) the government.
It is a natural effect of the enormous power we confer to our governments through the taxes and the rule-making role we give them.
The effects are easily judged by comparing the customer satisfaction in a heavily regulated market like infrastructure, health-care or planes and a more competitive, privatized market like consumer electronics or entertainment.
It is a natural effect of the enormous power we confer to our governments through the taxes and the rule-making role we give them.
The effects are easily judged by comparing the customer satisfaction in a heavily regulated market like infrastructure, health-care or planes and a more competitive, privatized market like consumer electronics or entertainment.
"What private company would ever be able to invest in R&D and especially in the necessary charging infrastructure?"
Tesla would probably not exist without government subsidies.
Also - electric cars are just a pretty small/feasible evolution from regular ones, moreover, the barrier to entry is not outlandish. There's a 'known market' and we know how to build them.
Even the sales cycle for large aircraft depends on state actors.
Tesla would probably not exist without government subsidies.
Also - electric cars are just a pretty small/feasible evolution from regular ones, moreover, the barrier to entry is not outlandish. There's a 'known market' and we know how to build them.
Even the sales cycle for large aircraft depends on state actors.
Yes. Because a private company taking advantage of corrupt actors in a broken market means that said company could not exist at all in a functioning free market.
Because it would be too expensive. We have no examples where private companies worked in parallel to build huge, expensive markets from the ground up. Like say the CAR market itself. Or the cell phone. Or the smartphone...
No, a Wise Government must come in and say "let there be market"...
Because it would be too expensive. We have no examples where private companies worked in parallel to build huge, expensive markets from the ground up. Like say the CAR market itself. Or the cell phone. Or the smartphone...
No, a Wise Government must come in and say "let there be market"...
How much do you think it costs to run a program like the 787? Shinkansen? Nuclear Reactors?
Electric cars are much less capital-intensive than building multi-hundred seat planes. There's obviously a spectrum of difficulty here, but we can make the capital requirements easier to have products that otherwise might take 20 years to exist, rather than 2.
Tesla only exists thanks to the grace of a billionaire who didn't want to spend his money on a private island in Hawaii.
Electric cars are much less capital-intensive than building multi-hundred seat planes. There's obviously a spectrum of difficulty here, but we can make the capital requirements easier to have products that otherwise might take 20 years to exist, rather than 2.
Tesla only exists thanks to the grace of a billionaire who didn't want to spend his money on a private island in Hawaii.
Those programs cost that much exactly because governments are involved. The corruption and sheer inefficiency of a government balloons costs orders of magnitude.
There are countless examples where human ingenuity and private entrepreneurship has found frugal solutions to complex problems but none where governments are involved.
I do agree that with huge waste you can do in 2 years what would take 20, but I am not sure the cost is always worth it. Especially because that cost on the long term is a corrupt market on the long term, unable to function without further government interventions.
There are countless examples where human ingenuity and private entrepreneurship has found frugal solutions to complex problems but none where governments are involved.
I do agree that with huge waste you can do in 2 years what would take 20, but I am not sure the cost is always worth it. Especially because that cost on the long term is a corrupt market on the long term, unable to function without further government interventions.
"There are countless examples where human ingenuity and private entrepreneurship has found frugal solutions to complex problems but none where governments are involved."
Nobody is denying this.
Nobody is saying that 'the government is the only source of innovation or should be managing the economy'.
But there are many industries that would not exist without strategic involvement by state actors.
Again - there are no 'big aircraft makers' in the entire world that are not backed by governments.
Nobody is denying this.
Nobody is saying that 'the government is the only source of innovation or should be managing the economy'.
But there are many industries that would not exist without strategic involvement by state actors.
Again - there are no 'big aircraft makers' in the entire world that are not backed by governments.
Which might be zero, if no private investors foresee a reasonable return on the investment.
What's good for the market is not automatically good for humans, despite what some people seem to think.
What's good for the market is not automatically good for humans, despite what some people seem to think.
Are you saying large airplanes have a negative ROI?
To quote the other response, which I trust you've read: "There are many, many industries wherein barriers to entry are far too significant for private capital to take the risks - moreover - especially in areas of innovation, some things would not exist."
I hope Boeing has done their napkin math correctly, because the Canadian government has threatened to cancel their Super Hornet purchase over this dispute.
That's a $5 billion dollar order that may have just gone up in smoke:
Canadian Prime Minister Justin Trudeau threatening to scuttle the country's plans to buy $5 billion worth of F/A-18 Super Hornet fighter jets from Boeing
It would cost the Canadian government a lot of political capital to back down on this threat, so if the US is intent to apply an import tariff to the C-series I can absolutely see Canada cancelling the Super Hornet order.
That's a $5 billion dollar order that may have just gone up in smoke:
Canadian Prime Minister Justin Trudeau threatening to scuttle the country's plans to buy $5 billion worth of F/A-18 Super Hornet fighter jets from Boeing
It would cost the Canadian government a lot of political capital to back down on this threat, so if the US is intent to apply an import tariff to the C-series I can absolutely see Canada cancelling the Super Hornet order.
As a Canadian, I wish that were true, but our gov does not ever play hard ball. We fully play the nice guy routine. There's no face-saving for us. I'm even surprised they made the threat.
The other issue is - we are in a bind. We're buying F18's because we're not going to go for the F35s, at least for now. And switching temporarily to another vendor would be impossible ... and our 'long term commitment' is usually to the US when it comes to fighter jets etc.. It would be pretty interesting for Canada to go 'European' for the next 40 years, it would damage our relationship with the US.
This is going to be big news in Canada and cause some ire, surely.
The other issue is - we are in a bind. We're buying F18's because we're not going to go for the F35s, at least for now. And switching temporarily to another vendor would be impossible ... and our 'long term commitment' is usually to the US when it comes to fighter jets etc.. It would be pretty interesting for Canada to go 'European' for the next 40 years, it would damage our relationship with the US.
This is going to be big news in Canada and cause some ire, surely.
> The other issue is - we are in a bind. We're buying F18's because we're not going to go for the F35s, at least for now. And switching temporarily to another vendor would be impossible
On the flip side, the Canadian government had already chosen the F-35 and then when the Liberal party became the majority they scrapped that deal.
People were claiming the F-35 deal couldn't be undone, but they did it. I wouldn't be surprised if they're willing to stick it to Boeing/DJT by scrapping the F/A-18 deal now too.
On the flip side, the Canadian government had already chosen the F-35 and then when the Liberal party became the majority they scrapped that deal.
People were claiming the F-35 deal couldn't be undone, but they did it. I wouldn't be surprised if they're willing to stick it to Boeing/DJT by scrapping the F/A-18 deal now too.
They made a payment for development a few months back to remain a partner, so they're not fully out. They were originally slated to start phasing out some CF-18s around now, but given how this was supposed to be an interim choice, they're probably going to have to start a service life extension program for their current inventory.
Canada is perfectly happy to not have functioning hardware for extended periods of time. Especially now that it has entered a far more isolationist stance under Trudeau (in terms of military involvement).
I have first-hand experience with this and this is really a significant problem and it's not a joke.
We are definitely not 'perfectly happy' - it 100% affects operational capabilities, including putting lives at risk - we operate without proper air support in some scenarios, finally the previous government faced the problem and bought some Chinooks (ironically from Boeing).
Trudeau is different only in tone from previous governments with respect to foreign engagement. In pragmatic reality our military involvements would be just the same.
Moreover - time is ticking severely on our F18's which are way-way past service windows.
As to the commenter above about F35's - it's very complicated, and our 'sticking to the f35' may have very well just been political. We never signed a deal, and never committed to a price - also - we still may buy them. Publicly pulling out of the deal means a number of local sub-contractors lose their contracts. Of course it's complicated though.
We are definitely not 'perfectly happy' - it 100% affects operational capabilities, including putting lives at risk - we operate without proper air support in some scenarios, finally the previous government faced the problem and bought some Chinooks (ironically from Boeing).
Trudeau is different only in tone from previous governments with respect to foreign engagement. In pragmatic reality our military involvements would be just the same.
Moreover - time is ticking severely on our F18's which are way-way past service windows.
As to the commenter above about F35's - it's very complicated, and our 'sticking to the f35' may have very well just been political. We never signed a deal, and never committed to a price - also - we still may buy them. Publicly pulling out of the deal means a number of local sub-contractors lose their contracts. Of course it's complicated though.
It's funny, most people in the rest of the world don't even think Canada has a military. What do the Mounties need with F18s?
I am sure the Eurofighter consortium would be happy to take an order for some Typhoons tho'...
I am sure the Eurofighter consortium would be happy to take an order for some Typhoons tho'...
> I am sure the Eurofighter consortium would be happy to take an order for some Typhoons tho'...
Sweden has a Gripen I'm sure they would love to sell.
https://en.wikipedia.org/wiki/Saab_JAS_39_Gripen
Sweden has a Gripen I'm sure they would love to sell.
https://en.wikipedia.org/wiki/Saab_JAS_39_Gripen
It seems like it would be an insanely huge task to start doing military contracts with a new supplier, get new parts, train servicemembers how to maintain the new planes, and deal with countless pieces of support equipment and infrastructure and software designed for one plane.
Then again, I really have no idea -- perhaps there are so few commonalities between an F/A-18 and an F-35 that it's just as easy to switch to another vendor.
Then again, I really have no idea -- perhaps there are so few commonalities between an F/A-18 and an F-35 that it's just as easy to switch to another vendor.
There are barely any commonalities between F35 variants despite what was promised, it's another debacle of that programme.
Semi-jokingly, why don't you apply to join the EU? In a year, a position as the biggest EU connection to the anglosphere will open - and we already have all our treaties translated in French, too; looks to me like lots of our values are very similar, and the US would be much more careful with their threats if you were with us ;)
Because we don't want to see, ahem, regime change in Ottawa.
Why would anyone want to join the EU?
What's the advantage?
Hand over significant authority to an unelected body, for what now?
There is no advantage, unless you're receiving subsidies.
We already have a trade deal with Europe, something the EU doesn't even want to offer the UK apparently.
What's the advantage?
Hand over significant authority to an unelected body, for what now?
There is no advantage, unless you're receiving subsidies.
We already have a trade deal with Europe, something the EU doesn't even want to offer the UK apparently.
Hand over significant authority to an unelected body, for what now?
That's strange, I'm sure I remember voting in EU elections.
That's strange, I'm sure I remember voting in EU elections.
Worker protections, guarantered 20+ paid holidays a year, paid maternity leave, an organisation attempting to clamp down on tax avoidance schemes, a willingness to take US tech giants to task that believe they are above the law, access to the worlds largest economy, generous EU funding schemes directed to deprived areas of member states that their own governments have demonstrated time and time again that they are not willing to do themselves.
I mean, that's just off the top of my head.
Nobody thinks the EU is perfect and it can improve in many ways, but your lies don't convince anyone of anything.
I mean, that's just off the top of my head.
Nobody thinks the EU is perfect and it can improve in many ways, but your lies don't convince anyone of anything.
There are many reasons, but the one relevant to this case is: because the US and China etc. can so easily bully EU states as they do with sovereign smaller countries.
That is probably the only good reason but the EU is not at all required for that.
Especially in the viciously undemocratic manner in which it is organized.
Especially in the viciously undemocratic manner in which it is organized.
* can't
The UK as well, as Bombardier has a big plant in Northern Ireland in the constituency of the small party that the ruling UK party needs to keep its majority.
This plant employs 4,500 people.
The Economist has a good overview of this fight:
https://www.economist.com/news/business/21729469-row-between...
This plant employs 4,500 people.
The Economist has a good overview of this fight:
https://www.economist.com/news/business/21729469-row-between...
The DUP (a right-wing / unionist Northern Ireland party) has a gun to the UK Gov't head at the moment as the Government needs their votes to stay in power (and do Brexit). 4,500 jobs is hugely important to that economy, and by extension to the whole Northern Ireland peace process.
There will be the argument that with supposed friends like the USA trying to screw Northern Ireland like this, then what chance does the UK have for a decent trade deal outside the E?
There will be the argument that with supposed friends like the USA trying to screw Northern Ireland like this, then what chance does the UK have for a decent trade deal outside the E?
I suspect we will see a few other threatened/attempted tariffs in multiple industries and they will all be leveraged together to "renegotiate NAFTA". My understanding is this is how trade deals tend to work from what I gather.
That said, it does sound high risk.
That said, it does sound high risk.
You make a great point.
This is, I think, a kind of negotiating tactic.
But this is generally not how trade negos work - I think that this is the Trump Admin's version of hardball.
US gov is big and diverse, and once it's appealed, the body making the ruling may not be part of Trump's apparatus directly and may have something more level-headed to say about all this.
This is, I think, a kind of negotiating tactic.
But this is generally not how trade negos work - I think that this is the Trump Admin's version of hardball.
US gov is big and diverse, and once it's appealed, the body making the ruling may not be part of Trump's apparatus directly and may have something more level-headed to say about all this.
Boeing was 'only' asking for 80%...
Does Delta have to “import” the airplanes? As an airline, can’t they pretend the planes are based elsewhere, and just fly inside the States? Must be a loophole here somewhere.
Foreign carriers aren't allowed to fly domestic routes but must have an international connection.
I remember hearing something identical to this about ships: The Jones Act [1] which requires all ships moving from US port to US port must be mostly US owned and mostly US crewed.
[1] https://transportationinstitute.org/jones-act/
[1] https://transportationinstitute.org/jones-act/
Indian states often do this for intra-state trucking.
You can lease them (from a Canadian/offshore holding company), NetJets is likely to be more competitive as a result of this.
I believe the 'importation' counts if a US company buys anything, anywhere.
"Bombardier" seems like an unfortunate brand name for commercial aircraft.
Of course one could argue Boeing receives massive 'subsidies' from the US government in terms of pork-laden defence spending contracts. And other things, like incentives for various factories etc..
Airbus receives massive benefits from their network of R&D centres affiliated with Universities.
It's almost a farce to talk about aircraft manufacture as 'purely free trade' - its de-facto a partly nationalized industry everywhere.
There would be 0 large planes in the sky if governments were not involved.