Chicago-based Boeing won a major victory against a foreign competitor earlier this week when the Commerce Department signaled its intent to impose a 219 percent tariff on Canadian-made jetliners, claiming aircraft maker Bombardier has been unfairly propped up by the Canadian government.
But critics of the decision say Boeing itself benefits from its own form of government support, which includes federal contracts and tax breaks from state governments in the United States — a reflection of how U.S. corporations are also dependent on government policies, contracts, decisions and in some cases direct financial inducements in their attempts to remain internationally competitive.
“The truth is anybody who’s in aerospace receives some type of subsidy, and certainly Boeing is no exception to that,” said Darryl Jenkins, chairman of the American Aviation Institute, an independent think tank focusing on the commercial aviation industry.
A large percentage of Boeing’s business comes from defense contracts, of which the U.S. military is easily its largest customer.
The company’s Arlington, Va.-based defense, space and security business reported close to $7 billion in revenue in the most recent quarter. The Pentagon’s fiscal 2017 budget called for buying seven more Apache helicopters, 12 F-18 Super Hornets and four V-22 Ospreys from the company.
Many of these contracts also cover research-and-development expenses that can nurture new products, such as a $499 million deal to help the Air Force develop future air vehicles.
In some cases, the company gets tax breaks from state governments hoping to lure high-paying engineering jobs, such as an $8.7 billion tax break the company received from Washington state in exchange for setting up jobs there. Others argue that the U.S. Export-Import Bank indirectly facilitates Boeing’s sales abroad, because the bank’s loans effectively allow foreign airlines to purchase Boeing jets at a discount.
At the heart of the Commerce Department’s proposed tariff is Bombardier’s C Series CS100 commercial jet, which seats about 100. Last year, Bombardier agreed to sell 75 commercial jetliners to Delta Air Lines in a multibillion-dollar deal.
Boeing’s objection to the deal mystified some. Boeing was not a competitor in Bombardier’s bid for Delta’s business last year and does not make a similar plane.
Some saw it as a political move.
“The less savory aspect of this is it’s a great chance for Boeing to find common ground with Donald Trump to please the economic nationalist wing of his base,” said Richard Aboulafia, an analyst with Teal Group, a firm that provides aerospace and defense analysis.
A week before Tuesday’s decision, Bombardier released a sharply worded statement titled “Boeing’s hypocrisy,” linking to a Seattle Times article that detailed how Boeing has sold the 787 Dreamliner at a loss for years, in the hope that it eventually will make up the difference in future sales.
“It is pure hypocrisy for Boeing to say that the C Series launch pricing is a ‘violation of global trade law’ when Boeing does the same for its new aircraft,” Bombardier said in its statement.
Boeing rejected the comparison.
“It is simply inappropriate to equate the billions in subsidies Bombardier and companies like Airbus have received with state-level investment incentives and export credit agencies like the Export-Import Bank, to which Boeing’s customers currently do not have access,” the company said Tuesday.
Officials at the Commerce Department described the duty as an effort to level the playing field.
“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.”
The size of the tariffs raised eyebrows. Such a large tariff is exceedingly rare for a multimillion-dollar item like a jet plane. If the U.S. government follows through with the tariff, it would more than triple the price for customers inside the United States, costs that would be passed through to the supplier.
“I’ve never seen one this big on this expensive of a product,” said Jenkins, the AAI chairman. “The tariff makes the price completely unreasonable.”
The attention-getting size of the tariff could be a bargaining chip to win trade concessions as the government moves through the process of finalizing the duty. The Commerce Department did not specify what subsidies Bombardier received that it considered improper, only citing support from the governments of Canada, Britain and the provincial government of Quebec in calculating its decision.
The alleged subsidies could include hundreds of millions of dollars in loans Bombardier has received for years from the Canadian government over its C Series aircraft, most recently a $372.5 million interest-free loan announced in February. Last year the company received a $1 billion investment from the Quebec provincial government related to the C Series plane.
British and Canadian leaders have said the dispute would damage Boeing’s chances to win defense contracts with their respective governments.
Canadian Prime Minister Justin Trudeau sounded the alarm last week, saying his government might cancel a previous proposal to buy Boeing F-18 Super Hornet fighter jets.
News of the tariff sparked dismay in Britain, where Prime Minister Theresa May is under pressure to maintain the country’s economic advantage as it prepares to divorce itself from the European Union as part of the Brexit process.
Bombardier employs about 4,000 people in Belfast, many of whom work on the CS100.
May’s office tweeted that it was “bitterly disappointed” by the Tuesday evening ruling.
Speaking to reporters Wednesday in Belfast, British Defense Secretary Michael Fallon said that he would not cancel an existing deal to buy eight spy planes and 50 Apache helicopters from Boeing but that the slight would hurt Boeing in future competitions, Reuters reported Wednesday.
“This is not the behavior we expect from Boeing and it could indeed jeopardize our future relationship with them,” Fallon said in a Wednesday news conference.
Still others are worried that Bombardier will become an example to other foreign firms thinking of setting up shop in the United States, adding a tinge of uncertainty to the broader U.S. business climate.
“Any resurgence of ‘made in America’ is going to depend on our ability to attract foreign firms to set up shop here,” said Nancy McLernon, president and chief executive of the Organization for International Investment, a nonprofit group that advocates for open markets.