September 27, 2017

Bombardier Tariff - A slightly Canadian perspective


The Commerce Department, true to the Trumpian hardball tactics on negotiations, slapped a 220% tariff on Canadian made Bombardier C-Series small jets, surprising Bombardier, the Canadian government, and even the complainant, Boeing.  As a Canadian, am I miffed? Not really.

Via the Seattle Times:
The U.S. Commerce Department sided with Boeing on Tuesday in the jetmaker’s tense trade dispute with Bombardier, imposing a massive tariff that would more than triple the price of Bombardier’s CSeries jets sold to American airlines and could further erode relations between the U.S. and Canada.

Commerce slapped a 219 percent tariff on the planes after concluding that Bombardier’s crucial CSeries sale to Delta Air Lines last year was supported by subsidies from the governments of Canada and the U.K.

“The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” Commerce Secretary Wilbur Ross said in a statement. “The subsidization of goods by foreign governments is something that the Trump administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

A decision in favor of Boeing was widely expected, but the size of the tariff imposed on Bombardier — 219.63 percent, to be precise — shocked all sides, especially the Canadians.

In its petition, Boeing had asked for a 79 percent tariff because of the subsidies.
Surprise!  

While I happen to think that protectionism is bad, I don't think this is necessarily a bad move by the Commerce Department for anyone concerned.  For Boeing obviously it's a win.   Their only real competition prior to the C-Series came from Airbus in the jet aircraft competition space.  

But Boeing had a reason for their complaint - if you are competing against a subsidized competitor you cannot be price competitive and the landscape is unfair to you as a supplier.  Boeing is not supposed to be in competition with the government of Canada. They are supposed compete with other manufacturers.

Bombardier should see this as a wake up call. If you cannot compete without help, then maybe they really aren't competitive and don't belong in that space.  As a company they do some things well.  But not everything.  In fact in some areas there performance is downright disgraceful. I'm not in the mood to defend a company that over-promised and radically under-delivered on something closer to home.

And with that backdrop, if Bombardier is not under the competitive marketplace mandate to deliver on performance, are you sure as a consumer you want to fly on one of their airplanes?  After all there's no race to be first to market here.  So shortcuts on safety are not required. But attention to detail is not exactly mandated either because the government of Canada is not about to let Bombardier fail and therefore attention to detail could easily be replaced by a lackadaisical approach to the effort to build new airplanes.

Some might argue that in order to grow the business into the larger jet aircraft marketplace, some support is needed. But that is something that should come about organically through the determination of shareholders - not at the expense of Canadian taxpayers, Boeing competitiveness and traveler safety.

I should clarify - there's no reason to believe that the Bombardier C-series jets are unsafe. In fact they seem to be a pretty good airplane series.  That's beside the point. Another competitor in the 737 sized marketplace is a good thing also.  What I have an issue with the is the subsidized approach to it.

I think this also helps president Trump.  This is after all an America first approach to a specific issue and that's a big part of what got Trump elected president. It's about foreign competitors being granted unfair advantages at the expense of American jobs.  

Canada and the United States have been good trading partners for a century. That's not going to change.  In such a relationship disputes are not only inevitable, they are healthy because it requires a review of the status quo in terms of what the rules are.  All in all, I'm good with the Commerce Department decision, as a Canadian.  Many of my compatriots are likely to have a more knee-jerk reaction however. 
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