Plane exploitations
Last week, Boeing filed an anti- dumping and countervailing- duty petition with the U. S. government, complaining that Bombardier is selling subsidized C- Series aircraft below cost on the American market. Arguments can be marshalled for either side.
On Bombardier’s side, one could ask whether Canadian taxpayers are really subsidizing low prices for the C-Series aircraft. According to Boeing’s estimates, the federal and Quebec government have given some US$ 3 billion for the development of the C-Series, including US$1.5 billion in equity investment from Caisse de dépôt et placement du Québec. However, these moneys don’t affect (marginal) production costs, and thus prices, because they financed development and are not related to the level of aircraft production.
Direct subsidies do flow from the continuing financing of export customers by Export Development Canada. But Boeing gets similar benefits from the corresponding U. S. bureaucracy, the Export- Import Bank, which is often called “Boeing’s Bank.”
It remains that Bombardier has no incentive to sell at lower price than what it can get. Any rational execut i ve or shareholder will charge what the market will bear.
Of course, a company may cut prices in order to gain market share, selling at a loss in order to maximize profits over time. Boeing claims that Bombardier is selling for less than US$ 20 million an aircraft that cost US$ 33 million to produce. This is not a surprise since Bombardier had announced such an aggressive marketing strategy. Deep discounts on new products are common in that industry, and Boeing has used them too.
“Hurrah for Bombardier!” we would say in a free- market economy. Let Boeing stop whining like a snowflake and compete if it can.
But there are arguments for Boeing too. Bombardier has also played the protectionist game. In practice, the old Quebec company looks more and more like a state corporation, benefiting from what Boeing’s petition calls “paternalistic industrial policies.”
Mind you, Boeing dutifully and naively repeats the “level playing field” mantra, whatever that means. In fact, selling below cost essentially means below the cost of a competitor who’s not happy with that. We are not exactly in a free market.
Moreover, there is a caveat to the claim that past government subsidies to Bombardier do not impact the prices charged on the aircraft market. The massive subsidies may have saved the company from bankruptcy ( as the company previously suggested) or least saved the C-Series project from oblivion (which is even more probable). In either case, the subsidies brought additional supply of mid- sized aircraft on t he market, pushing down prices. This market is thin, with only a few producers.
We have to look at the problem from the viewpoint of consumers and taxpayers, instead of the special interests of Bombardier and Boeing. If Canadian taxpayers are stupid ( or dominated) enough to subsidize the American flying public, the latter should jump on the opportunity. Instead of seeking refuge behind the skirt of its Washington mother, Boeing should compete with market means. It should not to add insult to injury and rob the American consumer with tariffs because the Canadian taxpayer has been milked.
The rules of the World Trade Organization allow tariffs against dumping. In the United States, a domestic producer willing to pay US$1 million in lawyers’ fees can easily obtain an antidumping tariff just by showing that a foreign competitor charges less in the U. S. market than in its home market ( another of Boeing’s complaints). But there are many good economic reasons to charge lower prices in one market than in another, such as charging less in more competitive markets or in markets where the elasticity of demand is higher, which happens all the time in domestic markets.
Douglas Irwin, a professor of economics at Dartmouth College who specializes in trade, writes that it is “hard to avoid the conclusion that ( anti- dumping l aws) are simply a popular means by which domestic firms can stifle foreign competition under the pretense of ‘ fair trade.’”
We can understand why corporations take advantage of such laws ( up to a point). The tragedy in this cronycapitalist system is that Bombardier and Boeing are incentivized to exploit their own countries’ taxpayers (through subsidies) and consumers (through protectionist measures) and to fight each other for the right to continue.
BOEING WANTS TO ROB AMERICAN CONSUMERS BECAUSE CANADIAN TAXPAYERS HAVE BEEN MILKED.