While Boeing and Bombardier Bicker, Americans and Canadians Get Burned

A current dispute between the Canadian government and the Montreal-based aircraft maker Bombardier on the one side, and Boeing on the other, appears to be proving one thing: Protectionism begets protectionism.

The quarrel heated up a few weeks ago, when Boeing launched an anti-dumping petition against Bombardier, asking the U.S. Department of Commerce to find that the latter was guilty of dumping its C Series plane on the U.S. market at below market costs with the help of the Canadian and Quebec governments. Demonstrating an all-too-predictable tit-for-tat approach, Canadian Foreign Minister Chrystia Freeland responded immediately to the move, ordering a review of the government’s previously announced purchase, without an open competition, of 18 Boeing Super Hornet fighter jets. Defence Minister Harjit Sajjan made the link between Boeing’s trade action and the Canadian Government’s response even more explicit a few days ago, saying: “It is not the behavior we expect of a trusted partner and we call on Boeing to withdraw it."

A few days later, the Canadian government suspended discussions with Boeing to iron out the details of the purchase. It is reminiscent of a Mafia Don: Nice aircraft contract ya got there. Would be a shame if anything were to happen to it.

Let’s be clear about something right off the bat: The Canadian Government turned to the Super Hornet not as a favor to Boeing, but because it needed the fighter jets to fill a projected 20-year capability gap. The plane offers maneuverability, with the capacity to serve as a multi-role fighter capable of carrying a wide array of weapons, while providing compatibility with Canada’s existing fleet of CF-18s. If the government didn’t believe that Boeing’s fighter jet met those needs, the company wouldn’t have been awarded the contract, certainly not without competition. What the Canadian government is doing by holding up the contract is threatening to cut off its nose to spite Boeing’s face.

Of course, Boeing is hardly in a position to complain about any country engaging in dirigiste economic policies. It has been a steady recipient of funds from Washington, channeled through the Export-Import Bank. In fact, Ex-Im is sometimes referred to as ‘Boeing’s Bank.’ And nobody comes to this fight with clean hands.

Bombardier has consistently sought and obtained protectionist rents from Canadian governments. The billions in government largesse – including recent loans of $1 billion and $372 million from the Quebec and Canadian governments respectively – has allowed Bombardier to cut prices and win a contract from Delta Air Lines for its C Series airplane, prompting Boeing’s attempt to get the Commerce Department’s help. When one considers the way both Boeing and Bombardier have been getting fat off the largesse of their respective governments, in any competition between the two aircraft makers one thinks immediately of what Henry Kissinger was reputed to have said about the Iran-Iraq War: “It’s a pity both sides can’t lose.”

But while both Boeing and Bombardier may benefit from their golden keys to their governments vaults, taxpayers, workers and other businesses on both sides of the border are the real losers. The money that Washington and Ottawa (and Quebec City) unload on the two aircraft companies only serves to distort the marketplace, restrain competition, divert capital and talent from other firms, and drain government revenue that could be used to cut taxes, reduce deficits, or improve infrastructure, education, training or other objectives.

The dispute demonstrates, once again, that protectionism and mercantilism inevitably lead to a vicious cycle of favoritism, subsidies and low-interest forgivable loans, with all countries engaging in a true race to the bottom. For businesses like Boeing and Bombardier, it’s a hell of a ride – while citizens and taxpayers pay for it.

The design of the Boeing 707 was largely underwritten by contracts to develop an Air Force tanker. Although there was apparently a huge risk to Boeing to spend the cash to develop a civilian version one could argue that development contracts for one project make it cheaper and easier to use that technology on other projects. Selling the civilian version without reflecting the government development expenditures represents dumping at unrealistic prices to other countries.

A similar argument is that oil is not really the current market price of a barrel as that price doesn’t reflect the money spent to keep open the sea lanes. Much of the dumping and cost arguments relies on viewpoint. For example, I see the free sea lanes and the lower cost of oil as a consequence of the Navy’s other functions and therefore free.

The courts are how we do the accounting. A lawyer once told me, the courts are a huge set of slowly moving grinding wheels that grind only coarse. Our courts today would chop the baby in half.

What should be done is have the free market decide. Bombardier, if I recall employs lots of Americans, since they are a transportation company. (They make boats, snowmobiles, ATCs, outboard motor, trains and planes.) Sea Doo are nice, so is Ski-Doo.

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