America First bites Bombardier

Bombardier

Over the last few weeks, we have seen the first effects of the new US international trade policy of America First hit the UK, in what could be a costly dispute for jobs and the local economy in Northern Ireland. The dispute is over the Bombardier C-Series jet made in Canada, the wings of which are built in Northern Ireland.

The dispute began in April 2016 with Delta Air Lines ordering 75 Bombardier CS100 aircraft which will replace its current fleet of 76-seat regional jets which, in turn, will supersedes the retiring smaller 50-seat ‘commuter’ jets. Boeing objected to the deal, claiming that Bombardier received unfair state subsidies from the UK and Canada, allowing it to sell airliners at below cost price in the US.

The cost of developing an airliner is extremely high. Aircraft manufacturers will therefore often attempt to get subsidies from governments to fund the design and development stages of aircraft construction. In the case of Bombardier, this was from both the Canadian and British governments.

Boeing alleges that the subsidies Bombardier receives from the UK and Canadian governments mean it is launching its new C series jets below cost in the US, and so the US trade authorities should impose tariffs.

Bombardier, by contrast, says Boeing’s position is both hypocritical and absurd. Hypocritical because Boeing prices its new planes very cheaply at launch and because Boeing has received huge subsidies from the US government over the years; and absurd because Boeing is claiming to be damaged by Bombardier’s sales even though Boeing does not sell any competing planes of a similar size and has not done so for a decade.

Initially, the US hit Bombardier with a punitive import duty of nearly 220% on the C-Series. This has later been added to by a further 80% anti-dumping tariff, meaning a total tariff of 300% on sales of the jet. This would mean that the original $5.6 billion deal could now set Delta back $22.4, making the purchase totally unfeasible and causing the lifeline order for Bombardier to collapse. This would have serious consequences for Bombardier, who were relying on the deal to recover some of its losses on the C-Series project.

The actions of Boeing and the US government risks a reaction from the Canadian and British Governments who both see potential job and economic losses coming from the collapse of the deal. Justin Trudeau, the Canadian PM has already said the Canadian air force will not buy Boeing’s Super Hornet jets from “a company that’s busy trying to sue us and put our aerospace workers out of business.” The UK Government has been weaker to date with Theresa May tweeting “Bitterly disappointed by initial Bombardier ruling. The Government will continue to work with the company to protect vital jobs for Northern Ireland.”

This will not be the last dispute which will develop from the new American trade policy of putting US jobs and companies first. For the United Kingdom, it is important to note that a trade deal with a much more insular US is not necessarily the answer to all its future trade hopes post-Brexit, and it must instead look ambitiously to the whole world. For Canada and and others who have relied on US trade for so many decades, this could be a turning point where diversification of trading partners becomes the new priority.

Toby Illingworth

Toby Illingworth

Partner at The Channel Group
Toby is a Partner of The Channel Group. In addition to his work at The Channel Group, Toby is also the Executive Director of New City Initiative, a think tank representing SME asset and wealth management firms in London and across Europe.
Toby Illingworth

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