Bombard(ier)ed by bad news

The news that the Department of Commerce has proposed a 219% tariff on sales of Bombardier aircraft into the United States bodes ill for the future. This stems from a complaint by Boeing that the Canadian government is subsidising sales of Bombardier’s C Series aircraft and thus undercutting Boeing’s sales of its 737 models. On the surface it thus looks as though the US government has sided with the US manufacturer in what may be the thin end of the protectionist wedge threatened by President Trump as his America First policy begins to take shape. Ironically, this comes just weeks after Boeing won an appeal against the WTO ruling in the case brought by Airbus that the US company had benefited from tax breaks in order to site a production facility in Washington state. However, the companies have been at daggers drawn for many years, with each accusing the other of receiving subsidies and there are still cases pending at the WTO between the two parties.

Ironically, one of the biggest subsidisers in the commercial aircraft business is the state-owned Commercial Aircraft Corporation of China (Comac). According to the BBC’s business editor Simon Jack, “Boeing sources tell me that the only reason they haven't taken a case against Comac to the WTO is that they cannot point to any commercial harm – yet.” But as Jack also points out, with China estimated to require another 3,200 new aircraft over the next decade, neither of the big two western manufacturers will be too keen to take China to the WTO for fear of the damage it will do to their future business prospects in China.

Indeed, this highlights the dichotomy at the heart of global trade negotiations. The US can inflict much greater economic pain on a smaller player such as Canada without fear of major repercussions than if it were to try the same tactic on China. This should serve as a wakeup call to any deluded Brexiteers who believe that the UK will simply be able to roll out of the EU in 2019 (or 2021) and blithely sign a wide variety of trade deals which will suit the UK. Ironically the news of Bombardier’s problems broke on the same day that the pro-Brexit MEP Daniel Hannan (described on his Wikipedia page as an Anglo-Peruvian journalist) announced the launch of the Institute for Free Trade which “makes the intellectual and moral case for free trade, and sees Britain’s withdrawal from the European Union as a unique opportunity to revitalise the world trading system.”

What Hannan fails to recognise is that by leaving the EU, the UK is leaving the largest and most successful free trade bloc in the world. He continues to cite the platitude that there are 165 non-EU countries with which the UK can strike better deals once outside the EU. But of these other countries, the only ones which matter are the US, which accounts for 16% of UK exports, China (5%), Switzerland (3%), the UAE (2%) and Japan (2%). If we are generous, we can include India (1%) more for its future than current importance. Adding the export share of the EU27 (47%) to these figures means that just 8 blocs account for 75% of UK exports. To put it another way, 159 countries account for 25% of UK exports. Only a crazed ideologue would believe that the risk-reward of jeopardising relations with its largest trading partner is a worthwhile endeavour. Moreover, with the US, China and India having considerably larger domestic markets than the UK, they will be in a stronger position to engage in trade deals with the UK designed to suit their own interests, as the Bombardier spat illustrates.

It is not exactly news to anyone that EU membership acts as a form of protection for the UK against the trade actions of larger economies. With politicians across Europe expressing reservations about the international repercussions of the mercurial Trump’s America First policy, it is ironic to say the least that the pro-America free traders on the Brexit wing of the Conservative Party continue to express few doubts that the UK will be able to cut a deal with the US. Yet there is potential fallout for the UK from the Bombardier dispute. The company employs around 4,500 people in Northern Ireland and at the behest of the DUP, the prime minister is believed to have raised the issue with Trump – apparently to no avail – which does not bode well for post-Brexit Transatlantic relations or indeed the future of Theresa May who relies on DUP support to remain in government. If anything, this should act as a wakeup call to those who still believe that no deal is better than a bad deal following Brexit. It cannot be stressed often enough how wrong this view is.