Trump was looking for a trade war. Now he has one. - Macleans.ca
 

Trump was looking for a trade war. Now he has one.

Economic historians have a term for this sort of behaviour: beggar-thy-neighbour. It usually makes things worse.


 

And so it begins.

Before he started picking on “Rocket Man,” and the National Football League, President Donald Trump, the bully-in-chief, targeted his country’s closest trading partners.

They didn’t take the bait. Countries such as Canada, China, Germany, and Mexico have done an admirable job of (mostly) ignoring Trump’s threats to blow up trade agreements and violate commercial norms.

But there is only so much a politician can stand. Trump keeps begging for a trade war, and it now seems inevitable that he is going to get one.

MORE: U.S. slams Bombardier with massive and ‘absurd’ duty of 219 per cent

The U.S. Commerce Department’s decision to tag Bombardier Inc.’s newest plane with retaliatory tariffs of more than 200 per cent 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.

Ross’s remark was telling, not because he said anything surprising, but because he chose to say anything at all.

There is nothing new about the U.S. looking out for the interests of Boeing; as Canadian Foreign Affairs Minister Chrystia Freeland said Wednesday, just ask Airbus SE, the world’s only other supplier of large commercial airplanes. Yet there was something new about the way Ross announced the preliminary decision. Edward Alden, a reliable observer of trade policy and politics at the Council on Foreign Relations, noted that it’s unusual for the commerce secretary to comment so forcefully on a determination that could technically be reversed.

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.

MORE: Bombardier gets a taste of ‘America First.’ What comes next?

Thanks to Trump, we probably are about to repeat that mistake. Consider the Boeing case.

The company earned revenue of about (US) $95 billion in 2016, which is greater than the gross domestic product of Ukraine. Bombardier’s revenue was about $16 billion. Yet mighty Boeing still took issue with the Canadian company’s sale of 75 of its 110-seat, C-Series planes to Delta Airlines, even though Boeing doesn’t build such a plane. Bombardier sold the C Series to Delta at a significant discount, standard practice in the aviation business, because Delta was one of the first to place a big order. Boeing said the only reason Bombardier was able to sell its planes so cheap was because it was the recipient of unfair government subsidies.

Boeing is the recipient of as much or more government assistance as Bombardier, but that is beside the point. The Trump administration saved no jobs by siding with Boeing: the company doesn’t make the plane Delta wanted, nor was it planning to. Boeing sued Bombardier to stomp on a potential future competitor.

Bombardier's CS100 assembly line is seen at the company's plant Friday, December 18, 2015 in Mirabel, Que. After years of delays and cost overruns, Bombardier's CSeries commercial aircraft has been certified by Canada's transportation regulator. THE CANADIAN PRESS/Ryan Remiorz

Bombardier’s CS100 assembly line is seen at the company’s plant Friday, December 18, 2015 in Mirabel, Que. THE CANADIAN PRESS/Ryan Remiorz

Meanwhile, the Commerce decision weakens Bombardier, and therefore puts in jeopardy at least some of the more than 20,000 Americans who work for the company’s U.S.-based suppliers. The plane-making duopoly of Boeing and Airbus would continue to reign uncontested, keeping prices high for airlines and their passengers. If Bombardier fails, a Chinese buyer likely would pick up the pieces to accelerate that country’s dream of challenging the duopoly. If that happened, Boeing could say goodbye to much of its Asia business.

So how does harassing Bombardier help American workers, again?

RELATED: How Chrystia Freeland sees trade talks in the Trump era

You don’t need to be a game theorist to connect those dots. The danger is that the Trump administration doesn’t care to try. It’s on a rampage. Robert Lighthizer, the U.S. trade representative, stated bluntly earlier this month that the White House intends to use the size of the American economy to muscle trading partners into accepting trade agreements on the president’s terms.

“What is the best thing to do in the face of market distortions to arrive at free and fair competition?” Lighthizer asked at an event hosted by the Center for Strategic and International Studies. “I believe—and I think the president believes—that we must be proactive, the years of talking about these problems has not worked, and that we must use all instruments we have to make it expensive to engage in non-economic behaviour, and to convince our trading partners to treat our workers, farmers, and ranchers fairly.

“We must demand reciprocity in home and in international markets,” he said. “So expect change, expect new approaches, and expect action.”

There is little reason to think any of this change will be for the better.

OPINION: Trudeau’s banana republic approach to Bombardier and Boeing

Americans, even the reasonable ones, tend to forget that politics is practiced in other countries besides their own. Bombardier builds the wings for the C-Series planes in Northern Ireland, and both Prime Justin Trudeau and British Prime Minister Theresa May are talking about stopping all business with Boeing.

Expect more of this from other countries because the U.S.insults will keep coming. The Commerce decision on Bombardier was an invitation to American companies to sue their toughest international rivals rather than out hustle them. The outrage that Canada’s political class demonstrated on Wednesday will spread to other countries. Because Trump is so unpopular, the pressure to retaliate will be great. Someone eventually will.

History is a pretty good guide for what could happen next. Maybe the lessons of the Depression will forestall the worst. But the nature of politics hasn’t changed enough to keep everyone on the high road. The trade war is coming.


 

Trump was looking for a trade war. Now he has one.

  1. They’ve found an old Howard Stern tape where Trump admits he has some psychological problems.

    Some?

  2. What are the chances of trading Sidney Crosby and all the other white Canadian hockey players on the Pittsburgh Penguins for a deal on lowering the tariffs on Bombardier, which seems to be going the way of the Avro(Doe Doe Bird)bother way. Sid the Kid is having his Gretzky moment, how much are you willing to offer for Crosby, Mr.Trump, please take him.

  3. What aload of BS.. Bombardier is and has been on tax-payer funded life support for decades. This article does not point out the legitimate reason for taking this action. Bombardier is unfairly subsidized by Liberal and Quebec governments. Boeing does not get handouts. It gets contracts from the USA government to build planes. Far different then corporate welfare from governments using taxpayers to save a failing company. Bombardier has been using government financing and bailouts to prop up a parasitical family and province on the back of Canadian taxpayers. It is no surprise to see the hypocritical Quebec politicians now asking for help from the rest of Canada again, when they told the prairie provinces to “F” off. I am tired of bailing out Quebec and giving the “transfer payment” every year to such ungrateful people. I was hoping for the YES vote in 1995, still hoping it rises to the level of Brexit before my life is over so I can see western Canada unshackled from the Eastern parasites.

    • There’s a better quicker way to do that.

      Separate yourself. You’ll love Donald.

    • Check out all the state and municipal tax breaks that Boeing receives. Propping up the industry is part of the economic and military fabric in the U.S. and most countries.
      Oh, and while you’re at it, check out all the subsidies that the oil industry receives in Canada. Most of that keeps the oil/tar flowing in Alberta.

    • I think you are painting Boeing as being much more virtuous than is the case (see some of the previous postings). Yes, Bombardier has been the recipient of considerable gov’t. assistance over the years. But you need to back up and see what else is going on here. Boeing is going after a product that does not directly compete with anything it now makes (or has shown any interest in making). As the writer notes, there are no Boeing jobs at stake. Rather, the Company is using rather crude tactics to hammer another aerospace player before it can ever become a threat (which is what it wishes it had done to Airbus when it had the chance). Boeing asked for an 80% duty, probably figuring the U.S. gov’t. would come in with a figure below that. To everyone’s shock (including, possibly, Boeing’s), the Commerce Dep’t. said 219% was the magic number (aside: it will be very interesting to see how they came up with that figure). Commerce Secretary Mills has been making combative comments for months; now, he has pounced. As the writer suggests, Mills’ actions are part of a much larger game plan than just Bombardier. On a related note, I have to think that executives at the French aircraft company Dassault must be walking around with smiles on their faces these days. Boeing, manufacturer of the F-18 Super-Hornet, has just shot itself in the foot in terms of supplying the Canadian armed forces with new combat aircraft. Remember that the Trudeau gov’t. previously attacked the Harper government’s choice of the F-35 as too expensive. If the Super-Hornet gets eliminated from consideration for political reasons, then does Dassault’s “Rafale” jet now become the leading contender as a long-term replacement of Canada’s CF-18’s ? Some things to watch for: i) the Bombardier file will be referred to the U.S. International Trade Commission, where Boeing’s complaint will be evaluated somewhat more objectively. Boeing will have to demonstrate how it has been harmed by Bombardier’s sale to Delta. That should make for interesting reading, since, to a casual observer, it hasn’t. been harmed at all; ii) will Bombardier be able to restructure its Delta transaction as a long-term lease rather than a sale ? Would that get around the trade barriers that the Commerce Dep’t. is trying to erect ? iii) what is the next step in Canada’s fighter-replacement program and how does that impact Boeing ?

    • Boeing is heavily subsidized as are all of the American aerospace industry. This will be reversed but do huge damage while making its way through the tribunals. It is time to reconsider any trade agreements with the Americans. They are not friends anymore. Under Trump they are at best rivals…perhaps worse. Not only would I cancel the F18 contracts, but would re examine where we will purchase new fighters. There are other choices….Rafele, Eurofighter, Saab, Chinese and Russian choices.

  4. I think Boeing is not hammering Bombadier just to eliminate a competitor but in doing so hopes to put Bombardier into a situation where Boeing can buy it for pennies on the dollar to expand its line on the cheap. Boeing is heavily subsidized, as are companies world wide. This will likely be overturned and Boeing knows it. They hope the action will be fatal before it is over turned. This cannot go unanswered. Same with softwood lumber. We need to punch back.

  5. Concludes Andrew Coyne:
    “Faith-based economics be damned: Canada does not have to be in aerospace.”

    h$$p://nationalpost.com/opinion/andrew-coyne-time-to-bust-the-myth-canada-does-not-have-to-be-in-aerospace

  6. What? No mention that Wilbur Ross was a life -long, card-carrying Democrat? LOL!
    That guy never turned down an opportunity when it presented itself. He only became a Republican in 2016.

  7. As an Albertan, I don’t have much interest in Bombardier, Boeing, or many of the other “hot” trade topics such as dairy, telecom, banking for which we Canadians pay far too much for, and there is no real domestic competition. While thousands of jobs have been lost in the West due to anti pipeline and and resource (not to mention carbon taxes) no one in Central Canada has done anything other than blame us for “global warming”. So please tell my why I should support a trade war with Trump over this?? Last I heard no one in Ottawa was offering free money to maintain jobs in AB SK or BC lost or go to “war” with anyone…

    • Thousands of jobs lost in the west due to the bust in oil prices and the traditional inability of those provincial governments, especially in Alberta, to plan for the inevitable… don’t blame the east for your problems. When thousands of manufacturing jobs were lost in the east, I don’t recall hearing any sympathy from the greedy oil barons of Alberta … just a lot of sneering…

  8. I love my country; my country’s government is another matter. Stay strong, Canada.

  9. If we are not simply just going to submit to the law of the heavy displacement in this, we must gird our loins for a David vs Goliath battle. I think we can win. We just have to have the resolve to make it happen. Remember the Mouse that Roared. We should win, Boeing has fundamentally only survived since the Douglas DC-3 ate its civilian airliner lunch in the ’30s through preferential military contracts — and what more blatant possible government subsidy could there be?? And we can just hopefully ditch along the way loser right wingers like Andrew Coyne who do nothing but rain negativity on Canada’s parade, along with the anti-Quebeckers who should just separate themselves, and get on with moving to their favourite places south of the border, instead of demanding that one of Canada’s founding peoples go away and bringing the policies of that xxxxxxx here. I’d really like to know, in the 21st Century, what high tech industry might be more important for Canada to be involved in than aerospace. From McCurdy to the Norseman to De Havilland, Avro, Canadair, and now Bombardier we’ve earned our stripes in this field. The Avro Jetliner beat the Boeing 707 into the air by almost a decade. To throw it all that away now for the second or third time would be another in our habitual Canadian acts of self-mutilation.

  10. For most mainstream media, Macleans included, most everything that U.S. President Trump does and promotes that does not agree with their views and that of the Establishment is “war”. If you are going to fight him all the way on about everything, then you are right: it is war. You called it! Very sad!

  11. Well… if them’s fight’n words, then maybe we should fight, and hit Boeing where it really hurts.

    Time to contract Bombardier to make Unmanned Combat Air Vehicles (UCAVs). They’re about due… might be a few years early but somebody has to start. Let’s call it the Arrow Mini :) Low radar signature carbon-fibre, high efficiency engines for long loiter times… stuff Bombardier is actually good at. Canada can do the high-tech. Yes, we can. Our existing F18s (CF118s if you want to be accurate) coupled with force-multiplying swarms of UCAVS would be formidable opponents. We don’t really need the F18Es nor the F35s. If we really need some back-fill before the UCAVs are ready, buy a few Gripens. Spend ALL the rest of the money on a Bombardier project to make UCAVs. Get the UK in on it too.

    Why let US aerospace companies lead the way? Boeing is old and crusty; time to show them what Canadians can do when they get riled. And, if it’s one thing that riles a Canadian, it’s getting buggered by US aerospace… that Avro chip on our shoulders is a wound that never healed. Boeing made a big mistake.

    • BRAVO!

    • Will you put your money where your mouth is? Boeing shares have gained 60+% since the election. Bombardier 6%.

      And that’s with Boeing pre-election lobbying crooked Hillary to the tune of $1.3 million vs. The $40,000 donation to Trump.

      • If, by this, you are inferring that Bombardier is a poorly managed, taxpayer dependent, leech of a corporation, then I’d have to agree. But, they do appear to have some talented engineers. Channelling a bit of Bannon, as a Canadian I’d have to say that while Bombardier is “an imperfect vehicle” they are our best bet to settle this thing with Boeing.

        Besides that, when it comes to UCAVs, Boeing is hampered by the USAF reluctance to head down that path. This, despite their own research project proving that UCAVs can already out-fight the best human pilots. Unencumbered by such nonsense, it’s a place where Canadian aerospace can effectively compete, and it doesn’t hurt that we’re ahead of the game when it comes to AI.

        If you don’t understand the Avro Arrow reference, then you’re not Canadian enough to get why this is a big deal up here. Yes, we will hold our noses and support Bombardier if we have to. Again.

        • Believe me — I want Canadian companies to do well and thrive.

          My point was that I don’t believe Boeing is “old and crusty”. I was simply pointing out that Boeing lobbied the wrong party this time. The current president is a personal buyer from Boeing — he owns and services a 757. Yet despite who Boeing lobbied — thank goodness for our free market society — Boeing is still succeeding. Boeing stock is just one indicator. Subsidies simply provide cash flow but are certainly not indicative of a companies worth.

          I often run into people who “talk the good talk” but do not “walk the good walk”. If you’ve invested in Bombardier — that’s great! And I do hope that investment works to your advantage.