In case the current trade war hellscape wasn’t irritating enough to navigate, the World Trade Organization has just opened up a new batteground. In a ruling announced Wednesday and reported by CNBC, the WTO authorized the U.S. to levy tariffs on Airbus planes in response to illegal government subsidies. Soon, it’s expected to offer a similar verdict on Europe’s desire to slap tariffs on Boeing planes.
The tariff announced Wednesday will impose a 10 percent duty on Airbus planes beginning on October 18th. The WTO is supposed to rule on its case regarding the subsidization of Boeing by the U.S. government in the coming months, with similar tariffs expected to stem from that case.
So, with both major aircraft manufacturers facing tariffs due to the over-subsidization of these megacorporations by governments, it’s hard to see who is winning. If the WTO fines imposed on both end up to be fairly weighted based on the value of subsidies received, then neither company is getting an advantage. And for the governments, the tariff income is probably going to be less than the illegal subsidies in the first place.
The only group I can really see benefitting here is airlines that aren’t headquartered in the U.S. or Europe. If both Singapore Airlines and Delta Airlines both want to offer a New York to Singapore route using an Airbus A350 ULR, Delta may struggle to compete with an airline that can get the plane for 10 percent less than any American carrier can.
This, in general, highlights how ridiculous these disputes are. Make no mistake: this is not a part of the trade war or an application of Trumpian tit-for-tat economic retaliation. This is the result of 15 years of both companies publicly complaining about the subsidization of the other.
U.S. airlines are—understandably--pissed off that roughly half of their planes just got 10 percent more expensive. Per CNBC:
“They will have to try and recoup through higher fares,” said Savanthi Syth, airlines analyst at Raymond James. “It is like fuel or labor cost increases.”
Delta Air Lines, which has purchased European-made Airbus A350 planes to revamp its long-haul, wide-body fleet, as well scores of smaller Airbus jets for shorter trips, said the decision would “inflict serious harm on U.S. airlines, the millions of Americans they employ and the traveling public.” The Atlanta-based airline has about 170 Airbus jets on order, according to a spokeswoman.
“We are concerned about the detrimental impact aircraft tariffs will have on the ability for low-cost carriers like JetBlue to grow and compete, which will harm customers who rely on us to offer competitive, low fares,” JetBlue said.
Both companies, it should be noted, are among the most subsidized in the world. And despite their massive political capital, it seems like neither is able to prevent its actions from backfiring. Sure, Boeing is happy that the U.S. is putting a tariff on Airbus planes, but if that means the already beleaguered company is going to be in even more trouble with its European clients, it’s hard to be too excited.
But, while I’m normally a free trader, there’s also a fair point to be made that rampant anticompetitive subsidization needs to be punished if we want to ever see the duopoly crack. With Airbus having acquired Bombardier’s flagship plane and Boeing entering a joint venture with Embraer, there is truly no mature competition left.
The one company that seems capable of breaking the duopoly is China’s Comac. But, if you’re not willing to punish illegal subsidization of Boeing and Airbus, you’ll really struggle to take on a state-owned Chinese manufacturer.