Wilbur Ross and the Commerce Department have shown, once again, that whatever it is they think they’re doing, it’s not in the best interests of the public.
In a move to protect Boeing, the department recently decided to impose a 220 percent import duty (okay, 219.63 percent) on Bombardier planes from Canada. It may be that this is all according to the letter of the law, but that’s just proof of the old saying “the law is an ass.”
The background here is that various levels of the Canadian government have subsidized Bombardier in making its new C Series planes. As Darryl Jenkins has pointed out here, it seems to be a pretty good plane. In part at least, that’s why Delta Air Lines agreed to buy 75 of them for some $5 billion. It’s also said that Delta got a pretty good deal, something well below list price. That in itself isn’t a problem, there are good reasons why a manufacturer might do that. The first big order for a new product from a top-level user, why not give them a deal to get the new line off the ground?
However, Boeing has complained that those subsidies from the Canadian governments have flowed through into the low price. Since this damages Boeing’s business, then something must be done. The International Trade Council has considered this, the Commerce Department and Ross too, and their response is the 220 percent import duty.
There is a certain rich chutzpah to all of this, as Boeing itself gains vast subsidies from various levels of the United States government. Everything from property tax abatements up to a truly astonishing $64 billion in loan guarantees, largely through the Export-Import Bank. The other two major aircraft manufacturers, Airbus in Europe and Embraer in Brazil, also get various chunks of aid. It’s not correct, but it’s not far off to insist that the entire industry lives off taxpayers — certainly it would all be very different without governments dipping into our pockets on plane manufacturers’ behalf.
The question is, what to do about all of this — a test the Commerce Department just flunked. Underlying all this is the most important point: Who are we trying to run the economy for? Is it the shareholders of Boeing? Do we want a corporatist economy? Perhaps we’re going to say that we should be running the economy for Boeing workers, some of whom would undoubtedly lose their jobs if Bombardier was subsidised to success in the U.S. market.
Or we could get this right and insist that the economy should be run, as it most obviously isn’t here, for the benefit of consumers. You know, the everyday customers? I stoutly maintain that that should, even if it isn’t, be so. Which is where the decision to implement duties therefore goes wrong.
Would having a new competitor in the jet market benefit U.S. consumers? Surely. Competition lowers prices, and lower prices make us better off. If more airlines do as Delta, then more of us become that much better off — competing airlines using the same planes will find a downward pressure on their ticket prices as each attempts to gain market share by exploiting the lower operating costs. There is no downside to all of us.
But what about those government subsidies? Well, we’ve just said that having the planes makes us better off. And if the Canadian government has subsidies making us better off, what should we make of it?
It’s actually a gift from the Canadian taxpayer to the American consumer. The new plane, the competition, makes us richer. That foreigners are paying to make us richer is a pretty sweet deal for us. It’s also rather bad manners to reject a gift of free cash.
The answer to the question of what to do therefore becomes clear. Assume that Boeing, the original complainant, is right, that there is Canadian government subsidy here. That will damage Boeing’s business. Assume too that the Commerce Department and Ross have correctly considered all of this. What American consumers should then do is say, “Thank you very much, and would you please like to subsidize us some more?”
If foreigners want to send us free cash, why wouldn’t we just take the money and run? Which is why trade protection, and the law about it, is indeed an ass.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute.
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