Battle for Aerial Supremacy Spirals into International Trade Dispute with Boeing vs. Bombardier at Center
What started out as a Boeing Co (NYSE:BA) complaint regarding the Canadian government’s subsidization of Bombardier Inc‘s (OTCMKTS:BDRBF) “C Series” jets has now devolved into a row between the U.S., Canada, and the U.K. following a massive tariff potentially being levied at Bombardier by the U.S. The result of the Boeing vs. Bombardier dispute and whether or not the tariff sticks has the potential to impact thousands of jobs across the three countries.
The impetus for the Boeing complaint was that Bombardier was being heavily subsidized by the Canadian government and therefore had an unfair competitive advantage over Boeing.
U.S. Commerce Department Sets High Duty on C Series Jets
As a result of Boeing’s feud with Bombardier, the U.S. Commerce Department has imposed a harsh 219.63% preliminary anti-subsidy duty on Bombardier’s C Series jets. The Bombardier tariff is due to Boeing’s argument that Bombardier came into the U.S. market below cost due to the unfair subsidies.
“Even our closest allies must play by the rules,” U.S. Commerce Secretary Wilbur Ross said as he announced the decision to impose the duty on Bombardier.
But that’s hardly where the story ends. The duty on Bombardier will not be active until the International Trade Commission rules on the case, which is likely to take place in 2018. But the larger issue of trade between the U.S. and Canada—already strained since President Donald Trump took office and began criticizing the North American Free Trade Agreement (NAFTA)—has coarsened as a result of the Bombardier vs. Boeing feud.
Boeing vs. Bombardier: Job Losses in U.S.
Canada’s foreign affairs minister Chrystia Freeland said that part of the supply chain for the Bombardier C Series jets runs through the U.S., meaning that Bombardier’s slowed business as a result of the tariff could result in job losses in the U.S. She said that 23,000 American jobs are supported through Bombardier.
On top of those potential cuts, job losses in Northern Ireland are also a possibility if Bombardier finds itself unable to do cost-effective business in the U.S. The U.K. is so concerned, in fact, that Prime Minister Theresa May tweeted out that she was “[b]itterly disappointed by initial Bombardier ruling.”
“We strongly disagree with the Commerce Department’s preliminary decision,” Bombardier said in a statement, calling the degree of the proposed U.S. duty “absurd.”
The duties, if implemented, would dramatically alter the cost of the C Series planes. Delta Air Lines, Inc. (NYSE:DAL) ordered 75 of the jets in April 2016. The cost of these jets then was about $19.0-million, according to Boeing, but Bombardier disputes that figure. In any case, the duty would raise the cost to $61.0-million.
The fight has now spilled into other international trade deals and negotiations. For instance, Canadian Prime Minister Justin Trudeau has halted the planned purchase of Boeing’s “Super Hornet” fighter jets as a result of the trade dispute.
“We won’t do business with a company that’s busy trying to sue us and put our aerospace workers out of business,” Trudeau said during a press conference.
“This is not the behavior we expect from Boeing, and it could indeed jeopardize our future relationship with them,” U.K. Defense Minister Michael Fallon told reporters in Belfast.
There was also no explanation as to how the Commerce Department came up with the figure for the duty, as the announcement and accompanying fact sheet provided no methodology or reasoning for the 220% tariff.
The Boeing vs. Bombardier feud has only further stoked trade tensions between three close trading partners, turning one company’s issue with the other into an international dispute with thousands of jobs on the line across three countries and two continents.
“U.S. slaps steep duties on Bombardier jets after Boeing complaint,” Reuters, September 26, 2017.
“The US just picked a nasty trade fight with Canada — and it’s likely to backfire,” Vox, September 27, 2017.