Thursday, September 28, 2017
Why the Bombadier saga destoys Brexiteers' post-EU fantasy
The decision by the United States Government to impose punitive tariffs on Canadian aircraft maker Bombadier has underlined the folly of those Brexiteers who have been pointing towards the US as a potential free trade partner once we leave the EU.
Bombardier received £113m in repayable funding from the UK government in a deal that is very much in line with the way that aircraft makers are funded. They are now faced with a tariff that will more than triple the cost of a C-Series aircraft sold in the US to about $61m per plane. The decision puts 4,000 jobs in Northern Ireland in jeopardy.
Selling airliners is not like any other business. Investment in the process is so big and timelines so long that normal market rules do not work. It can take decades for a multi-billion investment in a new airliner to become profitable. That precludes bank financing. The aircraft industry is therefore dependent on state support.
Boeing is not exempt from that. US aeroplane manufacturers get billions of dollars in defence work. The technology they develop with this money is effectively used to cross-subsidise the development of civil airliners and engines. That is how the Boeing 747 was developed.
Within the EU Launch Aid, enabled governments to invest massive amounts of money into developing new models which is repaid from royalties on sales. That makes it virtually impossible to determine what subsidy, if any, has been paid to the manufacturer.
Only huge economies like the EU and the United States can afford large civil aircraft industries but smaller countries like Canada can compete. That competition is undermined if the US can get away with constraints on trade characterised by these punitive tariffs.
The key here is that the UK alone is not in a position to challenge the United States. In contrast the EU has the weight to defend itself and to hurt the US with its own tariffs. Being part of the EU helps us defend ourselves against the aggressive trade defence policies of others. Outside the EU not only is the UK exposed to the full force of aggressive US tariffs, it is also exposed to potential EU safeguards.
Whichever way we look at this, leaving the single market will be a disaster for the UK. Theresa May's impotence in face of Trump's belligerence shows that not only will we be exposed to penalties by the big economies, but that dreams of a US free trade deal is pie in the sky. The United States is a protectionist economy. Anybody who thinks otherwise is being very naïve.
Hat-tip: Chris Kendall
Bombardier received £113m in repayable funding from the UK government in a deal that is very much in line with the way that aircraft makers are funded. They are now faced with a tariff that will more than triple the cost of a C-Series aircraft sold in the US to about $61m per plane. The decision puts 4,000 jobs in Northern Ireland in jeopardy.
Selling airliners is not like any other business. Investment in the process is so big and timelines so long that normal market rules do not work. It can take decades for a multi-billion investment in a new airliner to become profitable. That precludes bank financing. The aircraft industry is therefore dependent on state support.
Boeing is not exempt from that. US aeroplane manufacturers get billions of dollars in defence work. The technology they develop with this money is effectively used to cross-subsidise the development of civil airliners and engines. That is how the Boeing 747 was developed.
Within the EU Launch Aid, enabled governments to invest massive amounts of money into developing new models which is repaid from royalties on sales. That makes it virtually impossible to determine what subsidy, if any, has been paid to the manufacturer.
Only huge economies like the EU and the United States can afford large civil aircraft industries but smaller countries like Canada can compete. That competition is undermined if the US can get away with constraints on trade characterised by these punitive tariffs.
The key here is that the UK alone is not in a position to challenge the United States. In contrast the EU has the weight to defend itself and to hurt the US with its own tariffs. Being part of the EU helps us defend ourselves against the aggressive trade defence policies of others. Outside the EU not only is the UK exposed to the full force of aggressive US tariffs, it is also exposed to potential EU safeguards.
Whichever way we look at this, leaving the single market will be a disaster for the UK. Theresa May's impotence in face of Trump's belligerence shows that not only will we be exposed to penalties by the big economies, but that dreams of a US free trade deal is pie in the sky. The United States is a protectionist economy. Anybody who thinks otherwise is being very naïve.
Hat-tip: Chris Kendall
