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US set to impose tariffs on $7.5B of EU exports in Airbus row (bbc.co.uk)
148 points by dustinmoris 14 days ago | hide | past | web | favorite | 78 comments

Boeing has received approximately $90 billion in subsidies since 2000, from local, state and federal sources in the form of taxes, grants, and loan guarantees. [0]

[0] subsidytracker.goodjobsfirst.org/parent/boeing

The question is not if there are subsidies, but whether they are legal subsidies.

> “The WTO has now rejected every allegation of unlawful subsidies to Boeing with the single exception of one measure—a Washington State business and occupancy (B&O) tax rate. Boeing has pledged from the beginning of this case to comply with the WTO’s rulings, and the B&O tax rate will be no exception. Boeing will support the United States and Washington State as they take steps necessary to fully comply with today’s ruling.

> In 2006, after attempts to negotiate a bilateral agreement, the U.S. Government (USG) filed a case with the World Trade Organization claiming Airbus had received $22 billion in illegal subsidies. U.S. officials estimated the economic benefit of those subsidies (in 2006 dollars) at more than $200 billion.


Citing Boeing on this isn't really going to get a good answer, of course they think it's an illegal subsidy. You need to define illegal though.

The general interpretation of the issue states that allowable subsidies are, "those which are applied to research and pre-competitive development activities, and others which assist disadvantaged regions" [0]

Tens of billions of dollars in tax breaks and loan guarantees doesn't really seem like it could all fit under that definition, and indeed it looks likely that the WTO will rule that way as well.

The main problem with this case isn't just that AirBus received illegal subsidies. That can be true at the same time that Boeing also received them, making this a somewhat ridiculous thing to argue about, for Boeing to claim to be the aggrieved party here when any grievance or disadvantage has been offset by their own subsidies.

The end result will be additional tariffs imposed in both directions, making consumers pay more, at a time that tariffs and trade wars exacerbate a minor economic slowdown, increasing the chance that it will turn into something more.

[0] https://www.thefreelibrary.com/Trade+Liberalization+Under+th...

Boeing isn't just saying that they "think" there are illegal subsidies. They're pointing to the WTO's rulings. I guess I could've looked up those particular cases and cited them directly. However, I reckon if they were lying about what the WTO was saying, that wouldn't be difficult for you to find and point to yourself. In fact, we need look no further than the article that started this discussion to verify. Let's look at the actual content of the argument instead of relying on circumstantial ad hominem.

No, you're right: The WTO has ruled against AirBus, which makes their subsidies de facto officially illegal. But Boeing isn't a great source for understanding the intricacies of the issue, and by definition any claim that subsidies are improper is also a claim that they are illegal. That's pretty much what I meant, along with pointing out that Boeing's subsidies are similarly problematic.

Note: The WTO will issue their ruling on the legality of Boeing's subsidies in January.

> The end result will be additional tariffs imposed in both directions, making consumers pay more

Consumers will pay more, roughly in proportion to their consumption of a product that is at once a luxury good and environmentally unfriendly. The money mostly won't be destroyed - it will go to governments who can increase social spending or cut other taxes instead.

Sounds like a very progressive change to the tax regime. Who's complaining about this again?

> You need to define illegal though

Illegal as defined by the WTO.

Um, yes, obviously, they are the relevant authority in this case and whose definition I then expound upon. Were you voicing a criticism?

You implied that the actions werent illegal, by bringing up things that Boeing said, and implying that Boeing is biased, and also wrong.

This is misleading, because the WTO has already ruled on this Airbus stuff.

And the WTO thinks that the stuff that the EU did is illegal. Therefore it is illegal, and you shouldn't imply that it is not illegal.

So yes, the stuff that the EU did is illegal. Full stop. It is illegal according to the WTO, and therefore it is irelevant to say that Boeing is Biased, because the authorities agree with Boeing and the authorities have ruled that it was illegal.

Both Boeing and Airbus have received subsidies that are claimed by various parties to be illegal.

And the WTO rulings on these cases will come about 4 months apart. Airbus now, Boeing probably January.

Which might lead to similar option for tariffs in the other direction. Our, possibly all aid to Boeing was legal. But this think that would have been noted - these cases have been dragging around for a while. (2014 or something)

Both are questions.

And we got the 737 Max out of it. If we continue to protect Boeing from competition, they'll continue to do this.

I think you misunderstand. We got the 737 Max because of competition from Airbus in the form of the A320neo series - otherwise Boeing would have taken a few more years and made a clean-sheet design.

EDIT: I'm not saying the 737 Max issues are Airbus's fault. I'm saying that the existence of competition is why we ended up with the quick&dirty stopgap solution instead of a better solution further in the future.

OR: Boeing went through the a series of merger consolidations in aerospace that effectively destroyed their engineering culture, blew up their competition, monopolized their markets, and removed the need to innovate and then when they got caught on their ass by Airbus they made a half-baked airplane that killed hundreds of people.

See: https://mattstoller.substack.com/p/the-coming-boeing-bailout

Or: Boeing is in a spiral to death, involving bigger-than-themselves trends:

- Airbus started later, so they started with newer technology, on top of it the fly-by-wire / all electronics commands. Boeing is weighted by its legacy. Dozens of thousands of pilots have been trained on mechanical systems, it’s hard to migrate them. Airbus benefited from watching Boeing’s experience and starting at the age of electronics.

- Boeing bought McDonnell Douglas in the 2000’s which has extremely bad engineering records (Half of episodes of Air Crash Investigation are about the DC-9/DC-10/MD-11, involving FAA leniency on the flying doors, FAA leniency on extending the length without doing the proper engineering, and I don’t know if one sees a ressemblance with current events). So the MD acquisition may have entirely modified Boeing’s middle management approach to « handling FAA ». By negotiating FAA’s leniency, or by having people exchange jobs and offices...

- Since the MD purchase 20 years ago, Boeing has chosen to collude with FAA to become the certifier instead of the FAA, in order to win competition against Airbus. Unfortunately it has eroded customer trust when we noticed the FAA isn’t doing its job at all, for example about the metal frames where workers had to drill extra holes next to misplaced ones, or bend the frames, compromising structural integrity entirely [1], the batteries or the MCAS.

- Now with 200 aircrafts 737 Max grounded since 6 months, and perhaps in need of being thrown away entirely, although Boeing isn’t paying directly, it’s still a very good solid stable reason on the long term for customers to choose... not them.

So Boeing had an incumbent, and played the card of « Let’s bypass the safety process and see whether we recover our advance ». It can’t bankrupt because it’s financially as engineered as a subprime, and a governmental strategic asset, but its future isn’t bright.

[1] https://youtu.be/IaWdEtANi-0

The scary thing is Boeing has zero incentive to work differently. The US government will bail them out if push comes to shove because they are the only major domestic commercial airline manufacturer left.

It's a really fubar situation.

Only now do we start to get a glimmer of why multiple mergers in aerospace was probably a bad idea, and anti-competitive. But the U.S. political class gets a lot of money supporting mergers.

Let this be noted in other markets where we're told that 2-3 players are plenty of competition (looking at you, telecom). If any one company is too big to fail because there's not enough competition left, there's already not enough competition.

Airbus was a merger of smaller, individually uncompetitive manufacturers. Worked out ok for Europe.

I’m sorry can you detail?

I thought Airbus started with the Concorde, the project of UE willing to do something industrial and inspiring together to increase our pride, interdependence and more interestingly our engineering skills. The Concord itself failed as a market but the skills/organizations we developed resulted in Airbus/EADS and their civil planes, in which the acquisition of smaller companies was a mere tool participating to a grand scheme decided by Europe.

Are you suggesting that this storytelling is rather reversed, and that Airbus was the result of a natural, organic merge of several companies?

I'm not an Airbus historian but a quick scan of the Wikipedia page[1] suggests that at least some of your understanding is incorrect.

As far as I can tell Airbus started as a consortium of European aerospace manufacturers to allow them to compete with US manufacturers. Several of the cooperating companies that became Airbus such as VFW-Fokker and Aérospatiale were themselves the result of mergers.

The history of mergers at Airbus doesn't look much different from that of Boeing. Concorde was one of the first designs but Airbus was not created specifically to build it. It appears Airbus was instead created to build what the industry called an "airbus" which seems to mean "airliner".

> Are you suggesting that this storytelling is rather reversed, and that Airbus was the result of a natural, organic merge of several companies?

Yes, it appears that Airbus is the result of a natural, organic merge of several companies. Over many years and many layers.

[1]: https://en.wikipedia.org/wiki/History_of_Airbus#Origins

Somehow your comment reads as if the crashes were Airbus' and not Boeing's fault. Or am I missing something here?

Above comment isn't putting blame on Airbus, it's objecting to the statement that competition would have prevented the 737Max, and challenges that competition was the reason the 737Max was made.

I suppose it could be read that way, but my take on it was that competition doesn't always product the optimal outcome.

Or the existence of Boeing sitting on its laurels, and not having a plan to build a new 737, or its replacement, before the neo appeared. It's not only the case Boeing needed to react with quick & dirty. They could have been pro-active. Arguably they didn't because they're not adequately competitive. And they went with the stop gap also because they're inadequately competitive. Short cuts at every turn.

This, many people here think competition is the cleanest way to the top. It’s not, and this is why we have regulations.

you must be kidding! So now not only we have to give money to Boeing, but also be happy with the terrible products they create? If they can't compete, them they shouldn't be in business at all.

Most of this comes from EXIM Bank loans. The actual merit of the existence of EXIM is debatable, but there is no other bank that could finance large export deals for Boeing, and the EXIM happens to be a (profitable) government corporation.

It seems that the EU could retaliate immediately, due to an old WTO win [1]. Though probably for a smaller amount, somewhere between $2.2bn and $5.0bn. And then of course there is the pending WTO final decision against Boeing/US expected I believe next year [2].

I don't think this will be a win for anyone...

[1] https://leehamnews.com/2019/09/30/eu-can-retaliate-against-b...

[2] https://www.dw.com/en/wto-rules-against-us-and-boeing-in-mam...

> I don't think this will be a win for anyone...

Nobody wins in trade wars.

Is a boycott a form of trade war? What about an embargo? I'm surprised you can make such a sweeping statement. Frankly I don't think things are as simple as "free markets" since they don't really exist. Companies are also political entities, exercising power in the real, physical world. Not some idealized vacuum market.

What if we imposed tariffs on Chinese products that contain high amounts of lead? Does nobody win then? Suppose further that such a tariff hinders the expansion of companies who put high amounts of lead in their products, allowing a company who does not use lead to gain a supply chain and infrastructure advantage in these "expanded areas". Is nobody winning then?

>"What if we imposed tariffs on Chinese products that contain high amounts of lead? Does nobody win then?"

It's a poor example because that's not how products containing dangerous levels of a substance are dealt with. None of this recent trade war back & forth has imposed tariffs on any products for any reason resembling this. Even if they did, the answer is still "no", we don't win by simply making dangerous or deadly items more expensive. We ban them. When toys from China were found to have lead paint a few years ago, which violates US law, we didn't put tariffs on those toys, we put out public alerts and recall notices.

If we do start putting tariffs on, say, vaping products from China because we believe they are dangerous, then maybe there would be a good comparison. However, even then, we could simply tax them locally instead of instituting an international tariff that would provoke trade tensions, so we still wouldn't "win" compared to available alternatives.

Maybe there have been examples of winning a trade war via tariffs, but I'm not aware of them, and history is littered with losses. [0]


> It's a poor example because that's not how products containing dangerous levels of a substance are dealt with.

Well, it would actually be interesting, given that various RoHS-style approaches seem to rely entirely on bans and labelling requirements. Fees would be an interesting middle ground for things that can't be banned for product quality† reasons, but for which labelling is not a sufficient deterrent for low-value uses of hazardous substances.


† Lead is a very useful material. In many cases, using lead instead of alternatives in a product can dramatically improve consumer safety. For example, lead solder is more ductile than lead-free solder; in a product that vibrates, lead solder can dramatically improve the useful life of a product, as far as I've been told. Furthermore, the higher temperatures required to make joints with lead-free solder increase the failure rate of components being soldered.

The difficulty is not banning, the difficulty is detecting. Nobody indicates that their product has lead - it's found through inspections and once you found it you would be utterly stupid not to take the known-to-be-harmful product fully from the market.

This reminds me of California's ban on selling some products in large size containers. A person can buy 1 quart cans of some wood finishing products, but 1 gallon cans cannot be sold. Of course, this means if that person really wants the product, they can just buy four 1 quart cans for every 1 gallon can they would have bought. This at least makes that person weigh the decision to use the product versus an alternative that is preferred.

Yes, lead is a very useful material, which is why it's a bit ridiculous to say that putting a tariff on lead in itself would somehow allow a "win" in a trade war. In that generic sense, it's no different than any other raw material.

What's actually being discussed is making US consumers pay more for French cheese and Czech beer, in retaliation for Europe sending cheaper airplanes to the rest of the world.

Not that I support trade wars, but do we have evidence that really nobody wins in trade wars? Just out of curiosity.

As another poster mentioned, when countries don't trade, they lose their comparative advantage in producing the products that they can produce most efficiently. With free trade, countries can focus on building the products that they're most efficient at producing. Now, it's important to bring that with free trade, the distribution of benefits is not equal. Those who produce a product that is now competitive in the global market stand to gain. Those who produce products that now face cheaper foreign competition stand to lose. It can be shown that the gains are always larger than the losses, but there may not be an effective mechanism to re-distribute the benefits and losses so that everyone wins. This is known as Kaldor-Hicks efficiency.

First, I'm an advocate for fair trade, since truly free/open trade doesn't exist and in some cases could be very bad. For example, the US doesn't allow for slave labor (prison labor being a near exception). There are limits on forced work cycles and requirements for safety.

I would suggest that we allow open trade with those countries that meet or exceed our own work, safety and environmental protection requirements. In this case, China, India, most of Africa and some of South America does not meet such levels. In which case, trade should appropriately be restricted unless and until such changes are implemented. This doesn't force our values on other countries, but would at the very least encourage better work and environmental conditions.

In the process of deferring our own production overseas, we've lost our own ability to produce a lot of goods. Some of which requires material resources that are excessively scarce domestically while not fostering relationships with other countries that do have more of those natural resources. This has allowed China and others to foster those relationships, and the conditions relaxed to the point of the acquiring of those resources creating, IMHO, more damages than the good those resources bring.

I do feel that environmental pollution is a real and serious problem, though I'm less inclined to support the paranoid delusions of some, and the outright disinformation of those that are pushing a political agenda over any real, meaningful environmental impact. There are real and meaningful changes that should happen, and negotiation with foreign governments and peoples are a part of that.

As to balancing the winners and losers, I am not sure that should be a goal of trade, and even then that's a large part of what tariff and excise taxes are/were for. It will always balance out in the end and technology is ever increasingly the great equalizer.

International trade and trade wars are two different things though.

If one country conducts their trade in an unfair manner and won't stop until another country retaliates, after which they both trade fairly, this would be just one an example of an effective trade war.

Whether any of this is happening today is very complex and seems to come down to a matter of opinion, especially since almost no one has sat down and really looked at the numbers and issues in depth.

The situation is a bit different now but 1930's Smoot–Hawley Tariff Act [1] seems like it was quite a lose/lose scenario.

[1] https://en.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act#After_...

My first answer would be https://en.wikipedia.org/wiki/Comparative_advantage

but I'm not sure it's directly related to trade wars.

It depends how far it goes. If it is used to negotiate then it is a form of trading, if it damages trade on the long term then it is bad for trading and thus it is bad for the countries involved.

Politicians often do the wrong thing to score some points in the next elections.

That's what I was thinking.

It's not entirely accurate to say "nobody" wins. Politicians can definitely "win" in trade wars.

Every nation gets the government it deserves.

That only works in case of democracies.

Nope, it's true for every country (except for outright invasion and occupation, I'll give a country a pass on that). Short of an occupying force, every country has the ability to choose its own leaders. Non-democratic systems only exist because the people allow them to.

> Non-democratic systems only exist because the people allow them to.

That is an extremely optimistic perspective.

Ok, then why don't you explain how exactly a non-democratic system is able to persist if no one in the country supports that regime?

A minority of people with power support the regime. Most people hate it but are powerless to change it.

The West has a large diaspora from former Soviet countries. You should try talking to some of them sometime.

>A minority of people with power support the regime. Most people hate it but are powerless to change it.

Exactly why is this minority more powerful than "most people"? That doesn't even make any sense. Most people aren't powerless, they just refuse to stand up and take action, so they're allowing the minority to oppress them.

Tell that to starving north-koreans.

Lots of NKs are not starving. The military has literally millions of people in it, and they're well-fed. Do you think the regime would continue if this were not the case?

Hey, they deserve it apparently

They do, just like every nation does. The North Korean government persists, and does what it does, because it has the support of a majority of its people. No government, no matter how autocratic, can continue without popular support (or an occupying force, which is certainly not the case in NK). That's why the maxim is true.

Every dictator rules only with the assent of his subjects.

Does that count when your government is undermined and overthrown by outsiders with more firepower than you?

"I don't see why we have to let a country go Communist due to the irresponsibility of its own people." ~ Henry Kissinger on Chile in the 70s.

No, I would say that's the one exception. It doesn't happen that often, though, in the big picture.

How do you define a trade “war?” Is it simply affecting free trade in some shape or form?

If so does devaluating your own currency or propping up industries via government backed loans count?

I’d argue that these initiatives affect trade and force other governments to enact their own measures. And of course, there are winners and losers.

> Nobody wins in trade wars.

I would consider upholding higher-order principles to be a win.

The short term "necessities" for tariffs aside, I don't see why in the long run we shouldn't be working toward eliminating all tariffs to begin with.

The argument: -The US consumer buys $100B in Japanese products. -Japan consumers buys $50B in US products.

US cries: We spent $50B more on your products, you MUST buy ours or we will raise tariffs.

How is that fair? I provide you with a product you wanted, and now instead of being allowed the same courtesy I have to chose between accepting a product back I don't want, or being hurt on my ability to reach my customer base?

It just seems like a mechanism for less productive producers to cheat by using the government to show arbitrary favoritism instead of actually working on improving their product(s) to service ALL their customers better.

Aren’t the production lines of Airbus and Boing booked for many years ahead? Isn’t this why airlines put up with the 737-MAX fiasco?

Then, aren’t these tariffs simply a tax on the consumers?

True... But with the 737 saga continuing, and there is no Boeing successor in sight, and you ain't gonna buy any Airbus soon, I personally believe there are influences in some airlines to actually think about switching. It isn't going to be easy but you've got a lot of time on our hands anyway. This taxes might make just that bit more difficult.

Right. The tariffs mean that American airlines have to pay more for Airbus machines, especially for those they already ordered. And of course, with things being as they are, Airbus has little incentive to lower prices, as they have such a big backlog.

Could increased tariffs be a win for the environment? More locally sourced goods means less wasteful transports...

As much as it seems so, it's not environmentally efficient.

This is because the same raw materials would have to be extracted at multiple places, more people would have to work at similar factories, producing similar goods.

Effectively, the world will be making the same 7 billion shoes except that shoe manufacturing infrastructure+supply chains+transportations will have to be made everywhere, thus expediting environmental degradation.

A lot of extra work will be done to find the same efficiencies everywhere.

Shipping for 7 billion people is actually very efficient.

...and more wasteful manufacturing. There's usually a reason products are shipped.

If it was anything other than airplanes maybe.

Tarifs on airbus the moment Boeing is doing that bad with the 737 fiasco seem more than "happy news" to the Boeing's shareholders. I call that effective lobbying.

What is astonishing however is how Trump is so willingly trading the relatively stable economic environment with EU for another trade war front.

Queue the HN cheerleaders for tariffs. Not sure why everyone seems to think politicians meddling in the economy is a good thing (subsidies or tariffs).

As opposed to not meddling? Has that ever happened in the history of government? Economics and politics are tightly coupled.

...these are tariffs explicitly allowed by the WTO in retaliation to politicians meddling in the global economy in the form of illegal subsidies.

excellent idea, but that would require ALL politicians do the same. sometimes retaliation is necessary, when some dont play with the same rule set as the rest.

HN has tariff cheerleaders?

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