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.
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.
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.
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?
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.
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.